CRA is Cracking Down on Condo Flipping

Due to tax avoidance, CRA is cracking down on condo flipping

Because of the red-hot real estate markets in Toronto and Vancouver, purchase/sale transactions have been undergoing greater scrutiny by CRA. With experienced audit teams, CRA is cracking down on condo flipping, with a view to preventing the negative effects of realty tax avoidance. Today, the Canada Revenue Agency has new technologies and computers to effectively access and analyze market data in real estate. Inasmuch as CRA does have a focus on tax avoidance issues, there is added interest in the after-effects of condo flipping with respect to affordability issues.

Affordability crisis in the Toronto and Vancouver markets

The average sale price of a condominium in Toronto rose more than 20% from the previous year.

And while prices in Vancouver tend to be higher, the percentage increase is similar. Some experts have drawn a connection between speculative condo buyers and the dramatic rise in sale prices. The notion that “condo-flippers” are making money and not paying applicable taxes is disturbing on many fronts. This is exactly why CRA is cracking down on condo flipping. It creates a more balanced market for all buyers and sellers while having an effect on the speculation going on.

Ontario registry for pre-construction condominium sales

The Ontario government would like the Canada Revenue Agency to better enforce disclosureof “assignment sales” in order to prevent tax avoidance. As such, both Ontario and British Columbia have suggested a registry for pre-construction condominium sales (and assignment sales). Clearly, the registry option is one ofmany, as the provinces look into effective ways of assisting the federalgovernment with investigation and audits. A registry would enable both provincial and federal governments to ensurefull disclosure, therefore discouraging condo flipping.

The perils of pre-construction condominium flipping

Pre-construction condo flipping could well be audited by CRA. And while outstanding taxes will have to be paid, apotentially significant penalty could also be assigned (not to mention criminal charges for tax evasion). Legally, individuals are required to report all real estate sales. For those who did not properly report real estate sales to CRA, or did not correctly pay taxes on real estate profits, it’s best to address these issues immediately. For some, it may be valuable to employ the services of tax professionals to mitigate any interest or penalty charges.