Flipping houses or condos? CRA reminds you that all profits are fully taxable

By ThinkPol Staff

Canada’s taxman is reminding house and condo flippers that all profits made buying and reselling homes in a short period of time are fully taxable.

This also includes pre-sale flips, where a property is bought and sold before its construction is complete, a process also called an “assignment sale”, according to the Canada Revenue Agency media release issued last week[1]https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2018/flipping-houses-condos-know-your-tax-obligations.html.

Earnings from “shadow flipping,” where a speculator buys a property and then, for a profit, assign the right-to-sell clause that is in the contract to another speculator or the final buyer”, are also fully taxable, according the tax agency.

The CRA is emphasizing that “the principal residence exemption does not apply to property flipping” and “these transactions may also be subject to GST/HST which you would be responsible for remitting to the CRA.”

“The CRA acquires and analyzes third-party data and has found that some flips are not being reported or are being reported incorrectly,” the taxman says. “The profits from flipping real estate are generally considered to be fully taxable as business income.”

And you don’t get a free pass for being a non-resident. Irrespective of your citizenship and residency status, you must report and pay taxes for profits made from flipping property, the CRA says.

“A non-resident who invests in property in Canada is liable to pay tax on gains that arise from the sale of that property and is generally not eligible for the principal residence exemption,” according to the tax agency[2]https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/does-canada-revenue-agency-address-non-compliance-real-estate-sector.html. “There are rules[3]https://www.canada.ca/en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2016/what-your-federal-tax-obligations-when-buying-selling-property-canada.html related to the disposition or acquisition of certain Canadian property that require non-residents who sell Canadian property to notify the CRA and to pay an amount to cover their estimated Canadian tax liability. This protects the Canadian government’s ability to collect tax that would otherwise be payable on the sale of a property.”

From April 2015 to December 2017, the CRA audited 4,951 files in British Columbia and assessed $140.0 million as a result of these audits.

The penalties for non-compliance are harsh.

“The CRA will apply a penalty equal to 50% of the additional tax payable if a taxpayer knowingly makes a false statement when filing a return,” the CRA says. “During the period of April 2015 to December 2017, the CRA applied 1,254 penalties, totaling $38.6 million. The highest penalty was almost $2.5 million.”

References   [ + ]

1. https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2018/flipping-houses-condos-know-your-tax-obligations.html
2. https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/does-canada-revenue-agency-address-non-compliance-real-estate-sector.html
3. https://www.canada.ca/en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2016/what-your-federal-tax-obligations-when-buying-selling-property-canada.html

6 Responses to Flipping houses or condos? CRA reminds you that all profits are fully taxable

  1. nonconfidencevote says:

    Gee.
    The govt has finally woken up to the issue of undeclared, taxable RE flipping….
    Where’ve they been for the last 10 years in the Lower Brainland?

    I cant wait to see how many realtors get nailed in this ……
    “Hello, CRA calling. We want all your records going back 7 YEARS…..”

  2. Joe says:

    CRA do something about shady real estate …. I will believe it when I see it.

  3. nonconfidencevote says:

    If the Globe and Mail can “investigate ” this why cant the CRA OR the local Van media????????

    https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0ahUKEwj4-4XjgeXaAhVT-lQKHbdAB1oQFggwMAI&url=https%3A%2F%2Fwww.theglobeandmail.com%2Fcanada%2Farticle-flipping-of-condo-units-by-insiders-fuels-hot-vancouver-market%2F&usg=AOvVaw2syzUovJxiqcbkAYE4FAVN

    DISGUSTING doesn’t even begin to describe the govts lack of monitoring, enforcement, auditing, etc etc etc……but if “Joe Average” owes the CRA one thin dime they will hound you to the gate of Hell.

    What a F**king charade our Laws are.

  4. Just Truth says:

    I will personally report all flippers on Barkley Str in Burnaby. I was witnessing a process ; 90 per cent apartments were flipped in one month in a new high rise.
    The realtors were barely speaking in English but they were excellent flippers .
    If Christy Clark would be in power one more term, BC would be sold completely. Now she is l enjoying her life…
    There is no any justice in Canada.

  5. nonconfidencevote says:

    Bank rates bumped up today….
    More to follow in the weeks and months ahead! 🙂
    B20, interest rate hikes, CRA audits.

    Sales plummeting!
    Welcome to the 1980’s shysters.
    Personally I’m gonna love it watching 90 % of the lying, scamming, cheating scum in this Real Estate sales Monoply industry financially wither and die.

    NUKE THE MONOPOLISTIC REAL ESTATE INDUSTRY.
    Previous sales, Previous Prices, relistings, days on the market should be available for ALL to see not just the commission based scum that flog bs to get a larger commission.
    Total conflict of interest.

    The Real Estate industry deserves a tax audit enema on EVERY Real Estate Sales pimp in BC and Canada.
    Bury them in audits and seize all their cash until they can prove they paid taxes on it!

    HAPPY HOUSING CRASH EVERYONE
    AHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAAHA

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