Brokers' condo buying clients need to get their legal paperwork in shape before selling up or they could face the wrath of the taxman.
The Canada Revenue Agency (CRA) is reportedly cracking down on condo flippers, with hundreds of owners under audit and receiving penalties.
The CRA have undertaken a special ‘condo project’ to investigate sales transactions. Since last April, this project has led to almost 600 income tax audits with almost half of that number receiving penalties.
Speaking to MortgageBrokerNews.ca's sister publication, Canadian Real Estate Wealth, Mark Weisleder, lawyer and real estate lecturer, says this has become a serious issue of late.
“If you buy a new condo from a builder and flip it shortly after closing, firstly you may have to repay the HST rebate portion of the purchase price because you did not move in or rent it out,” he said. “This can be close to $30,000 in some cases. In addition, if you sell shortly after closing, CRA considers this business income and not a capital gain, so you will be expected to pay tax on the full amount of any profit made."
A number of factors are analysed by the CRA before applying a penalty, including the number and frequency of transaction and taxpayer’s circumstances and stated motivation to sell.
Weisleder advises condo owners to be "properly prepared" before arguing position with the CRA.
"The person must be able to demonstrate through appropriate documentation that they intended to move into the unit on closing in order to claim the HST rebate and to try and have the property classified as capital and not inventory or business income."
