Make sure you keep your tax sale (particularly tax rulings) purchase records.

[Dave2]

Going through a tax audit in my case HST audit is never fun.

Having proper records is the key to surviving it.  In our rush to get
the title confirmed we overlook the importance of key tax rulings.  

Generally in my limited experience Municipal treasurers are relatively thorough
in getting a transaction tax (i.e. HST/GST) ruling from higher levels of government.   It is particularly true if you have an older building that you do some rennovations on.  That earlier ruling can be very important in whether you are liable for HST/GST taxes as a result of the rennovations or not and also how much on resale.

In my case fortunately I still had them and was able to use the information as part of my submission.  Fortunately I also had a lot of pictures of the rennovation and now we just wait on what is turning out to be a complicated ruling.    

My concern is that the government often works with considerable delay in these cases and the tendency is to eliminate the records after a while. For example I bought a boat several years ago at a garage sale, because the owner was dying of cancer. The deal was that the seller was to pay the taxes but neglected to do so.  4 years after the fact the government came looking for their taxes and by then I had discarded the records.  Fortunately we were not talking a lot of money (but it could have been very messy) particularly as the estate was settled by this time.  
 
On tax property purchase resales I worry that they government will start looking years after the fact.  

[Dave2]

Going through a tax audit in my case HST audit is never fun.

Having proper records is the key to surviving it.  In our rush to get
the title confirmed we overlook the importance of key tax rulings.  
 
On tax property purchase resales I worry that they government will start looking years after the fact.  

 

Four months after the process started and several dozen pages of submissions back and forth we finally got a conclusion.  Some interesting conclusions and bottom lines.  

This was related to a rennovation of a historic building which came with a tax sale I got.  For this part of the tax sale the building and adjacent 1 hectare of land were ruled exempt on original purchase and remaining land was ruled liable for HST which was paid.  

a) Bad news I lost my original claim (ITC) claim on renovation expenses) with a cost to me of exceeding $5,000.  Pulling all the records together and organizing them for a submission also took considerable  time.  

b) Good news is I retain my exempt status on rennovation which is probably worth over $20,000 saving on ultimate sale of property.    

c) The ITC claim was filed because with the extent of rennovation I felt I would lose exempt status.  This is a highly complicated area of the act with the advisory note alone about 70 pages single spaced.  

d) I used honest contractors with good records and this was important.  I think they were surprised at the prior ruling and the extent of the records (I had an extensive photographic record of the rennovation.)  

Conclusions:

a) Revenue Canada now reserves the  right to audit you from any office in Canada.   Mine was from a western Canada office.  

b) My records were generally complete and I try to keep it clean so there were no real issues with the individual claim entries more with whether I lost my exempt status or not.  I expect to get audited again on sale of property so this may be a big help down the road.  

c) The new electronic Land records have a much more capable search function for government officials then most people realize and I think that is the reason I was selected for audit.  

 I have a beneficial ownership structure for this and some other properties and in effect the actual ownership is held off title.  While legal it is uncommon (probably only 1 in 10,000) property registrations so if you do the right search mine will stand out.

They asked for proof, it was provided and it was accepted (this is where a good lawyer is worth his weight in gold.) This is mainly done to solve a local municipal issue but it looks like more audits will be coming to me. LOL.

I have no complaints with the Revenue Canada staff who acted fully professional.  They had a job to do and it was a complicated case.

I collect HST on sale if required and I am glad I have.  I think there are a lot of shocks coming to people who have not.