What is “The Postal Code Project”?
The Canada Revenue Agency (CRA) has launched a new scheme dubbed “The Postal Code Project”. Its purpose is to track high income earners living in wealthy neighbourhoods. It uses a systematic approach to identify those individuals and review whether they are reporting income accurately.
What does it mean for me?
For individuals residing in areas identified, there is a greater likelihood that the CRA will reassess tax returns. If reassessed, taxpayers may owe significantly more tax than what was initially paid. Not to mention the additional interest and penalties related to the reassessed figures. Therefore, it’s better to report your income accurately to avoid penalties and interest.
An individual sold a vacation property in the Caribbean for $300,000 more than they paid for it. They also and failed to report the gain; either because they were unaware of the potential taxes applicable to the sale, or to avoid paying tax. The capital gain on the sale would be equal to $300,000, of which half is taxable. Therefore, one half is tax free and the other $150,000 would be added to that individual’s income. Many of whom may already be in the highest tax bracket. As such, they end up being taxed at the combined tax rate of 53.5%. That equates to approximately $80,000 in capital gains tax.
What about the Principle Residence Exemption (PRE)?
If the property being sold is designated as the individuals principle residence, the gain is tax exempt. Although, many of the individuals living in “Postal Code Project” communities may own more than one property. We recommend designating the property that has increased the most in value as a principle residence; most often their home in the city. This ensures that larger gains on property are free of tax. However, it is the tax payers decision as to which property to designate. In the end, the goal is to pay the least amount of tax possible.
What you can do prior to reassessment?
Individuals who may not have reported all income and/or assets can file a voluntary disclosure. This will eliminate any additional penalties; as long as it’s received by the CRA before a reassessment occurs. However, the interest and adjusted tax payable must be paid immediately to keep interest at a minimum.
I’ve been reassessed, what can I do now?
Contact us, for a free consultation. Learn exactly what options are available after a reassessment. The Taxperts Group is a dedicated group of tax lawyers and accountants, experienced in handling audits appeals. The CRA does make mistakes, and when they do, we will work hard to ensure that you save every penny possible.