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Geyser
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Look out flippers - the taxman cometh!

Thu Aug 29, 2013 5:43 pm

Here's an interesting excerpt from today's "The Greater Fool" blog. The 18 month residency requirement will doubtless be a nasty surprise for some folks as the insatiable predators at the CRA start digging into the past decade or so of flips. What a huge and juicy source of revenue that could be. :shock:
As I told you more than a year ago, condo flippers, speckers, short-term owners and even many unsuspecting buyers could end up on pointy end of CRA, facing significant and totally unexpected tax bills. That seems to be ratcheting up into high gear now, with the tax cops papering Toronto and Vancouver with ‘questionnaires’ about condo buys and sells. If you receive one of them, have your dog eat it.

Always on the quest to find new money to support Mike Duffy and Pam Wallin, the feds are deep into audits on the Toronto condo scene. Anyone who bought a unit pre-construction, then sold for a profit without actually moving in, is liable for capital gains tax, and must also repay the GST/HST refund that residents receive. That’s pretty obvious.

But the revenuers are also after people who bought new condos, lived there for less than 18 months or two years, then sold for a gain. They, too, are being served with bills for capital gains and tax rebate repayment, since the time spent as occupants was not great enough to consider the condos to be principal residences. Instead, the units are being classified as investments – meaning you can deduct the mortgage interest from taxable income, but face tax on the entire proceeds. Now real estate brokers are being warned if they suggested this strategy to new-unit buyers at any time during the past seven years (the audit period), they could be sued by their former clients, the buyers.

By the way, there is no hiding. The CRA has access to every shred of information about purchases, assignments, sales, mortgages, commissions, rebates and profits. That includes lists of buyers provided by developers and sales data from land registry offices. Escape is futile. You are surrounded.

Condo-hopping has been a totally accepted method of harvesting real estate gains by people who thought that by living there, all profits were tax-free. It’s also been at the heart of strategies suggested endlessly by developers and promoters like the legendary Brad Lamb. It’s at the core of a flawed and dangerous strategy the cultists at REIN call ‘the property ladder.’ So, beware. CRA will give you tax-less profits on real estate only if it believes you bought the place to live in, not to diddle with.

What a refreshing concept.
It's worth a visit to the site to see what he was also saying about how condo investments have turned "toxic".
http://www.greaterfool.ca/
In fond memory of Taipan, a model of modesty, decency, dignity and tolerance. Long may we all prosper from the tremendous legacy of worldly wisdom and specialized real estate knowledge which he left in the "Arguments" thread.
 
robert james
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Re: Look out flippers - the taxman cometh!

Fri Aug 30, 2013 5:27 am

 
Waldo
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Re: Look out flippers - the taxman cometh!

Fri Aug 30, 2013 8:43 am

is there a contact we can call or e-mail?
I know of one guy who has an investment SFH, rents out the whole thing and now has it for sale after owning it for about a year. He plans on selling without paying capital gains and has had his personal mail send to rental house since he bought it.
 
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jesse1
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Re: Look out flippers - the taxman cometh!

Fri Aug 30, 2013 10:09 am

http://www.cra-arc.gc.ca/gncy/nvstgtns/ ... u-eng.html

If you think someone is evading tax CRA will accept tips. Look at it this way: if someone evades it means the government raises its money some ways else. Ask the Greeks.
There is no shame in overpaying
 
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semven
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Re: Look out flippers - the taxman cometh!

Sat Aug 31, 2013 9:23 am

2.90 When acquiring a residential condominium unit, it is not unusual for a taxpayer to make a down payment, to enter into an agreement of purchase and sale, to enter into an occupancy agreement and to take possession prior to the registration of the condominium. The occupancy agreement may provide for payments which reflect the carrying costs of the condominium until the purchase transaction can be completed. Normally in such a situation, the taxpayer does not own (either beneficially or legally) the condominium unit until the condominium is registered under the relevant provincial legislation and the purchase transaction has closed

So you dont own it until you move into it..Then I would argue the 6 month rule would apply....

Waldo`s buddy is evading though.
 
Geyser
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Re: Look out flippers - the taxman cometh!

Sat Aug 31, 2013 9:33 am

Important difference he should have remembered:

Arranging one's affairs to avoid tax is extremely wise, arranging one's afairs to evade tax is extremely dumb.

If he didn't know that, then I suspect he's about to find out.

Also, the article states that even after closing and occupying, a sale within 18 months to 2 years can still cause problems. It appears they are focussing on intent rather than circumstances and if you entered into the purchase with a view towards short term profit they want their cut.
In fond memory of Taipan, a model of modesty, decency, dignity and tolerance. Long may we all prosper from the tremendous legacy of worldly wisdom and specialized real estate knowledge which he left in the "Arguments" thread.
 
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semven
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Re: Look out flippers - the taxman cometh!

Sat Aug 31, 2013 10:00 am

Agreed
You would probably need to demonstrate a transfer, family addition or some other extraneous reason for relocating. I would imagine if you just sat at home painting and doing yard work, without outside employment you would be demonstrating the attributes of a flipper.
 
grantness
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Re: Look out flippers - the taxman cometh!

Sat Sep 07, 2013 11:14 am

2.90 When acquiring a residential condominium unit, it is not unusual for a taxpayer to make a down payment, to enter into an agreement of purchase and sale, to enter into an occupancy agreement and to take possession prior to the registration of the condominium. The occupancy agreement may provide for payments which reflect the carrying costs of the condominium until the purchase transaction can be completed. Normally in such a situation, the taxpayer does not own (either beneficially or legally) the condominium unit until the condominium is registered under the relevant provincial legislation and the purchase transaction has closed

So you dont own it until you move into it..Then I would argue the 6 month rule would apply....
I don't see how moving into a condo is a requirement to own it. Plenty of investors own property without having moved in.

What is this "6 months rule" you're referring to?
 
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semven
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Re: Look out flippers - the taxman cometh!

Sat Sep 07, 2013 6:57 pm

We were discussing the criteria on establishing/ demonstrating principle residence as pertaining to Revenue Canada....
 
grantness
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Re: Look out flippers - the taxman cometh!

Sun Sep 08, 2013 3:44 am

Neither the portion your quoted nor any other part of the chapter says that a purchaser "doesn't own it until you move into it"

If a sale completes on January 1, is registered with land titles office, developer is fully paid, etc. but the unit sits vacant until the purchasers move in on January 15th, are you seriously suggesting that the developer still "owns" the property during that 2 weeks? Let's get real here.

I'm also still curious what you mean by "the 6 month rule" ... who's rule is this, and what exactly is this rule?
 
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jesse1
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Re: Look out flippers - the taxman cometh!

Sun Sep 08, 2013 7:29 am

The quoted text states a buyer can move in before transfer date, in effect they are renting from developer. They can live there without it being owned. If they need to show occupancy for some months to avoid GST a question is whether or not they get occupancy "credit" before the xfer date.
There is no shame in overpaying
 
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semven
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Re: Look out flippers - the taxman cometh!

Sun Sep 08, 2013 10:15 am

Neither the portion your quoted nor any other part of the chapter says that a purchaser "doesn't own it until you move into it"

If a sale completes on January 1, is registered with land titles office, developer is fully paid, etc. but the unit sits vacant until the purchasers move in on January 15th, are you seriously suggesting that the developer still "owns" the property during that 2 weeks? Let's get real here.

I'm also still curious what you mean by "the 6 month rule" ... who's rule is this, and what exactly is this rule?
Are you confusing "taxable date of ownership" with "date in which it became taxpayers principle residence"?

It takes 6 consecutive months of habitation to become your principle residence after it was income producing in your hands..I think it is in the General Anti-Avoidance Rule of the Income Tax act...but I may be mistaken
 
grantness
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Re: Look out flippers - the taxman cometh!

Sun Sep 08, 2013 2:19 pm

Are you confusing "taxable date of ownership" with "date in which it became taxpayers principle residence"?
I'm not confusing anything. I'm challenging your statement: "So you dont own it until you move into it.."

The notion that a person doesn't own a property even after it's been registered in his name at the land titles registry defies both logic & common sense. legal ownership is _defined_ by the name on title.

If your intent was to claim that a property cannot be claimed as a "principal residence" unless the owner actually moves in, that is typically, but not stictly true. I have read at least 1 case where PR exemption was successfully claimed without the property being inhabited, because the purchaser had a bona-fide intention to occupy the property at the time of purchase, but was subsequently unable to move in because he'd relocated for employment.

If you are talking about a situation where a newly purchased property is left vacant for more the entire year (and thus is ineligible for the PR exemption for that year) .. then that is an issue of "use" not "ownership".
It takes 6 consecutive months of habitation to become your principle residence after it was income producing in your hands..I think it is in the General Anti-Avoidance Rule of the Income Tax act...but I may be mistaken
I think you are mistaken. This 6 months (or 12 months) concept seems to be one of those urban myths that non-professionals keep repeating and then assume it's true because a bunch of other random people have repeated it. That would make it not a "rule" but a "meme"

Determining whether a property legitimately qualifies as a PR for a particular year is a subjective, not objective process. Obviously a short habitation appears suspicious but if corroborating life circumstances can explain the unusual pattern (e.g., suddenly moving for employment) then the claim can be justified.
 
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semven
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Re: Look out flippers - the taxman cometh!

Sun Sep 08, 2013 4:41 pm

What exactly are you challenging me on grant ness? My comment on the above post or the fact that I proposed that there was a six month rule? Did I claim I was a professional flipper? Did I claim to be an accountant? Or did I say that I thought there was language pertaining to this but also say I may be mistaken...Do you believe that if I post something once it becomes an urban myth?

You got me Grantness...on what I dont know ...but i surrender
Are you confusing "taxable date of ownership" with "date in which it became taxpayers principle residence"?
I'm not confusing anything. I'm challenging your statement: "So you dont own it until you move into it.."

The notion that a person doesn't own a property even after it's been registered in his name at the land titles registry defies both logic & common sense. legal ownership is _defined_ by the name on title.

If your intent was to claim that a property cannot be claimed as a "principal residence" unless the owner actually moves in, that is typically, but not stictly true. I have read at least 1 case where PR exemption was successfully claimed without the property being inhabited, because the purchaser had a bona-fide intention to occupy the property at the time of purchase, but was subsequently unable to move in because he'd relocated for employment.

If you are talking about a situation where a newly purchased property is left vacant for more the entire year (and thus is ineligible for the PR exemption for that year) .. then that is an issue of "use" not "ownership".
It takes 6 consecutive months of habitation to become your principle residence after it was income producing in your hands..I think it is in the General Anti-Avoidance Rule of the Income Tax act...but I may be mistaken
I think you are mistaken. This 6 months (or 12 months) concept seems to be one of those urban myths that non-professionals keep repeating and then assume it's true because a bunch of other random people have repeated it. That would make it not a "rule" but a "meme"

Determining whether a property legitimately qualifies as a PR for a particular year is a subjective, not objective process. Obviously a short habitation appears suspicious but if corroborating life circumstances can explain the unusual pattern (e.g., suddenly moving for employment) then the claim can be justified.
 
grantness
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Re: Look out flippers - the taxman cometh!

Sun Sep 08, 2013 6:34 pm

What exactly are you challenging me on grant ness?
if you read the entire sentence:
I'm challenging your statement: "So you dont own it until you move into it.."
---
Do you believe that if I post something once it becomes an urban myth?
If you read the entire sentence, It says believe it becomes an urban myth when...
... a bunch of other random people have repeated it.
---
You got me Grantness...on what I dont know ...but i surrender
Excellent! Class dismissed. For extra credit, you may choose to discuss the topic with tax professionals and ignore random internet rumours.

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