This past Saturday (April 20th, 2013) Garry Marr had an excellent article regarding taxation on condos in Canada. You can view the article here.
As you probably know, if you sell your new home and there is a profit, there’s no tax to be paid on the increase in value. For example, you buy a house at $200,000 three years ago and now it is now worth $300,000, you keep the $100,000 profit.
Now, if you are a property investor and had tenants and sold at a later date with the same example as above you would be looking at paying $23,000 in taxes based on a 46% tax bracket. ($100,000 times 46% times 50% for the capital gains tax exemption)
But, if you are seen to the CRA as a “condo-flipper”,someone seen as not trying to rent out the condo but sell it off before the condo is even registered, your taxation could be seen at the full 46% or whatever your tax bracket is. With the example from above, this would be $46,000.
So when reporting your taxes this year, 2012, think about how you are going to record the sale of that property. You could possibly face a fine of up to 50% of the tax owed for making a false disclosure.
The CRA is possibly looking at the condo industry a lot closer because of the budget this year where Jim Flaherty is looking a lot closer at recouping reviews on taxes to make up the deficit.
A lot of condo investors assign their rights to the condo before it is registered to knew owners. It is going to be harder for them to prove that they planned to use the property as a rental as opposed to renting it out. The CRA is working harder to get lists from the developers of the original purchasers of the unit to match against the people moving in in order to make sure taxes owed are being paid.
If you have any questions, of course email or call me at anytime and it would be my pleasure to work this out with you!
