Tax on Flipping 50%

David Rotfleisch, a tax lawyer with taxpage.com, said there are two ways in which a condo transaction could be taxable, either as capital gains or income.

“If you buy a condo and you live in it and you subsequently sell it, there is an argument that it is a capital transaction. You bought something and sold something,” he said. “But if you are buying paper and selling paper, there is no other argument than it is a debenture in the nature of trade and therefore fully taxable as income and therefore has to be fully reported. So anybody who has been involved in flipping condos or paper and who has not reported the transaction, is technically committing tax evasion.”

Denise Lash of Lash Condo Law noted the practice is common in the condominium industry.

Denise Lash, Lash Condo Law

“A lot of real estate agents or developers hold preliminary open houses for family and friends,” she said. “They get special pricing, hold on to it for three years and that’s when the assignment flip occurs. People will continue to assign, but the question is if they declaring that income.”

Lash said the CRA’s probe “makes sense” because of the issues in the marketplace.

“I would think no developer would take the position that anybody who’s making a profit on any resale shouldn’t pay tax. It should be handled the same way anybody else pays tax,” she said. “From the point of view of an investor who wants to assign, this shouldn’t discourage them — they should be disclosing and filing their taxes anyway.”

Both the Ontario and B.C. governments have given preliminary thoughts to creating some sort of registry system to track assignments in their provinces. But Rotfleisch said assignment sales have been a significant issue for years and feels any oversight should be done at a federal level due to the number of tax transaction reporting requirements involved.

“It is grossly overdue,” he said. “It is almost negligible on the part of CRA because it’s a well-known problem, it’s been a problem for years and it’s an easy fix.”

Csepregi said if there is reason to believe that a taxpayer has been noncompliant, their file will be referred for audit and may be reassessed based on the result.

“The CRA will apply a penalty equal to 50 per cent of the additional tax payable if a taxpayer knowingly makes a false statement when filing a return,” he said.

Flipping 

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