Tax Brief: Condo Flipping

Toronto’s condo boom has provided lucrative returns to condo owners and investors. Condo flipping, including the use of assignment clauses, has resulted in outsized return on investments. As this practice became more prevalent, the Canada Revenue Agency (“CRA”) has similarly made auditing condo sales a more prevalent practice.

Why is the CRA Scrutinizing Real Estate Flipping?

General perception: in Canada, all non-principal use homes are taxed as capital gains: 50% of the capital gains are taxable at the individual’s (marginal) tax rate.

Reality: different rules apply for those who flip real estate. If the CRA deems you to have flipped real estate, they will consider this as a taxable (business) income activity and therefore, 100% of the capital gains are taxable.

With fines of up to 50% of tax owed for misreported transactions, the CRA has incentive to actively pursue such transactions.

How Does the CRA Determine Whether You are an Owner, Investor or Flipper?

The Tax Act doesn’t specifically distinguish between the different types of individuals involved in real estate transactions. The CRA will look at circumstances surrounding your condo transactions: duration property owned, property advertisements, mortgage types, frequency and types of your real estate transactions and motivations to buy/sell the condo etc.

Other Matters to Consider: HST

If the HST rebates were already applied to you upon purchase of the condo, and you flip the condo, the CRA deem you liable for HST portion, plus interest penalties.

Have any questions? Contact Blumenfeld Woznica & Co. so that we can ensure that you are in compliance with all tax matters and maximise your post-tax real estate return on investments.