Thursday, April 18, 2013

Canadian Revenue Crackdown on Condo Flips

Long overdue. Lots of anecdotal evidence tax dodging in flipped assignments is widespread. If so, just wind of a crackdown will put a damper on speculative sales.
Currently there are three tiers:
No tax on gains from sales of primary residence.
Tax on half the gain from selling a recreational, rental, or investment property.
Full tax for making a business of real estate investment.
Some Toronto condo sales face CRA scrutiny
The CRA has yet to disclose how many sellers have been affected. But Toronto tax lawyer and text author David Sherman and other tax experts, accuse auditors of unfairly ignoring some legitimate explanations for sales. Meanwhile, Finance Minister Jim Flaherty wants the CRA to collect more than $500 million extra from suspected tax cheats this year.
“The auditors have applied a rare 50 per cent penalty for ‘gross negligence,’ even on those who had never owned a condo previously,” says Sherman.
Sure sounds like they want to make a point about the seriousness here, not just collect the tax.
One of Rhodes’ clients was single when he bought a condo in downtown Toronto in 2005. By 2009 he was engaged, and his fiancĂ©e wanted to be closer to her work in Guelph. So, he sold it, soon after it was registered. An auditor decided that the sale so soon after registration was suspicious, and so was the original choice of a two-bedroom apartment: “There is no reason to purchase a two bedroom condominium for one person,” he claimed. Rhodes says his client was assessed with over $100,000 of business income, resulting in a tax bill of roughly $50,000. He also faced a $25,000 penalty. “I estimate the cost to take this to the Tax Court (of Canada) will be around $10,000 to $15,000.”
It will be interesting to see if the decisions from this crackdown stand. Real estate seems to get its way on these things. Given the long timeline between condo sales and registration, most everyone could come up with a life excuse for bailing.

No comments: