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Non-compliance in the real estate sector continues to be an area of concern for the Canada Revenue Agency. In late November 2025, the CRA released the results of the agency’s real estate audit activities for the 2024-2025 fiscal year, which show that a total of 14,854 audits were completed between April 2024 and March 2025, up 2,100 from the prior year. These audits led to a total of $849 million in taxes and penalties, up from $648.5 million the prior year.

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The CRA attributes these results to the use of data analytics, better access to third-party data, and an expanded audit coverage. It uses an “escalating approach to address non-compliance with the appropriate level of intervention as early as possible.” This approach includes targeted communications, education and outreach, examinations, audits and, if warranted, penalties or criminal investigations.

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The CRA continues to focus on 10 significant areas of non-compliance.

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1. Reported income does not support lifestyle

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The CRA will occasionally review whether the income reported on an individual’s tax return is sufficient to support his or her lifestyle, including the cost and maintenance of real estate. Specifically, buying expensive assets, such as a high-end home, without an obvious source of reported income, could be an indicator of potential unreported income on an individual’s tax returns.

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2. Property flipping

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Taxpayers who buy and resell homes within a short period for profit are often engaged in property flipping. The CRA uses third-party data, such as land title and registry data and municipal property tax rolls, to identify and analyze these transactions, and has determined that some property flips are either not reported or reported incorrectly. The profits from flipping real estate are generally fully taxable as business income, but some taxpayers may choose to report it as a capital gain (which is only 50 per cent taxable), or not report it at all.

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The CRA has identified three main categories of individuals engaged in property flipping. The first category is professional contractors or renovators who buy homes with the intention of renovating and then selling them for a profit. The second category is speculators or intermediary investors, who often purchase pre-construction properties with the goal of reselling them rather than living in them. They may choose to assign the rights in the purchase contract to another buyer before taking ownership, with the same property often reassigned multiple times by different purchasers before the sale closes. Finally, the third category of flippers is individual renovators, who buy a home, renovate it, live in it for a short period of time, and then sell it for profit, claiming the principal residence exemption.

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3. Unreported capital gains on the sale of property

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If you make a profit on the sale of real estate, this capital gain must be reported on Schedule 3, Capital Gains of the personal tax return, whether that gain is taxable or exempt (due to the principal residence exemption).