Canada’s Financial Transactions and Reports Analysis Center (FINTRAC) and the Canada Revenue Agency (CRA) issued an Operational Alert related to related to potential tax evasion within the nation’s real estate market.
“Canada’s real estate sector is used by criminals to facilitate tax evasion and money laundering,” said the new alert, which stated criminal activity occurs in such real estate sectors as land development, construction and property sales.
“Tax evasion through the real estate sector is commonly facilitated by the ability to easily manipulate the price of a given property, and the ability to use nominees, false identities, corporations or trusts to hide the identity of the ultimate beneficial owners,” the alert continued. “Real estate can also be used to generate income that goes unreported to the CRA, particularly from capital gains made from buying and reselling property within a short period for a profit (“flipping”), from the sale of a property that is not the taxpayer’s principal residence or when non-residents do not report the capital gains from properties that they acquired and sold in Canada as a business endeavor. Tax evasion can also originate from unreported and unremitted income tax and/or Goods and Services Tax/Harmonized Sales Tax (GST/HST) collected from the sale of new or substantially renovated properties.”
The alert warned real estate professionals, mortgage lenders and other housing market participants to be cognizant of potential “straw buyers” to are used to front property sales, as well as private lenders operating outside of the traditional financial institution industry.
“Other types of illegal activities such as mortgage fraud, identity fraud, terrorist financing and money laundering are seen in conjunction with tax evasion transactions and contextual indicators,” the alert warned, which also cautioned, “Real estate brokers and sales representatives with past disciplinary issues related to fraud, money laundering and/or tax evasion, who are involved in the industry in other capacities, such as real estate development, represent a heightened risk for fraud and tax evasion. These individuals have the knowledge and potentially the motivation to avoid detection of illicit activities such as tax evasion and money laundering.”
FINTRAC and CRA called for those suspicious of potential criminal action to have “reasonable grounds” for reporting suspicious transaction reports, adding that such input “requires more than a ‘gut feel’ or ‘hunch,’ although proof of money laundering is not required.”
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