Source: Globe and Mail
Darryl Greer of Business in Vancouver reports on a practice that has been so universally accepted that even folks employed in banks were doing it-buying condos before they were built, and then “flipping” or selling the presale contracts before the buildings were ready for occupancy. All of this was completely legal with the Income Tax Act. But the Canada Revenue Agency (CRA) was not happy.
In what will be a “landmark” case the CRA has asked that the landowners/builders of the PCI Gateway project at Marine Drive and Manitoba “hand over information or documents on buyers who assigned their contracts prior to completion.” The CRA has to get this information from the original developer because it cannot “obtain the identities of the unnamed Assignor(s) from [a] publicly available source.”
As Darryl Greer notes, “Canada Revenue Agency (CRA) spokesman David Morgan explained the rationale behind the applications. In general, people who buy and resell homes in a short period for a profit may be engaged in property flipping. The CRA acquires and analyzes third-party data and uses this information to identify whether all income from property flipping is being reported correctly. The profits from flipping real estate are generally considered to be fully taxable as business income. The facts of each case determine whether such profits should be reported as business income or as a capital gain.”
So how much did prices rise during presales of these condo units? At the Residences at West project at 1783 Manitoba Street presales started at $294,900 for a one bedroom. Today a one bedroom on a top floor “was assessed at $816,000, up from $620,000 a year prior.” The building was completed in 2015 according to the BC Assessment Authority.
The developer behind the project states: “They’ve (the CRA) requested some information and we are not going to provide or disclose any information on our purchasers or the purchase contracts without being assured that they have proper authority to get that information. If they have to go to court to get that, then so be it, and if they get that authority, we will co-operate, but only to the extent we’re required to.”
Stay tuned. Those days of flipping condo assignments with no tax implication before occupancy may now be numbered.