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5 Lessons learned from $600 million unpaid Real Estate taxes

UNPAID TAXES

Canada Revenue Agency recently released its latest statistics on their effort cracking down on unreported tax liability in the real estate sector (unpaid real estate taxes).

We have been following this data since 2015 when it was first introduced.

I figured that it’s a good time to remind all real estate investors, flippers, land developers about a few quick facts about unpaid real estate taxes.

5 Quick Facts…

1. Property flipping is considered business income. It is legally allowed, but you are required to report it accordingly. Most mistakes are made when the sale is reported as capital gain.


2. Selling pre-construction condos/homes before closing is called an assignment. In the past, assignors’ names were not readily accessible by CRA. CRA has since obtained court orders successfully to require builders to the assignors and assignee’s information. You cannot get away from not reporting the income. Big Brother is always watching!


3. Assignment deals are subject to HST. Assignment deals are also considered flipping in the previous point and must be recorded as income, 100% taxable. You may think you can make a killing in selling assignment deals; there may be very little left after HST and business income tax.


4. When you flip a house, it usually involves renovation. If you have renovated substantially, you will have HST exposure. This means that when you sell, you must consider the HST impact on the sale price. One reader of my blog didn’t include HST in his calculation and was shocked to find out how much he must give up.


5. Tearing down an existing house and building new ones are considered selling new homes. Even though you don’t have to pay HST on the purchase of the existing home, you must charge HST on the sale of the new homes. The entire projection of profit can be substantially different.

Make sure you speak to a qualified accountant with a real estate background to consult on your financial matters.

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant