Toronto Condo Flipper Beware Revenue Canada is on the Hunt

We all know that selling your principal residence is exempt from being taxed on any capital gains.   For most Canadians their home is their primary asset, however over the years many have invested in new pre-construction condominium as an investment opportunity.   For years it looked like a safe bet for the savvy investor, but you knew that in time Revenue Canada would be looking for its piece of the pie.

Starting in the 2012 taxation year our central taxation agency will be looking for sellers of new condo development to prove that it was their primary residence.  Revenue Canada will be looking for tangible proof that you live in the unit and there is a couple to things to keep in mind when dealing with them:

  1. Your residency paper trail better be transparent and rock solid as they are not easily fooled
  2. I have seen Revenue Canada question owners who have been living in the unit for years
  3. If you are the original purchaser and reassigned (sell) the unit prior to it being registered expect to be called
  4. Developers will be wary to tangle with the tax man so when asked they will disclose their paper trail and it better match yours

Lets talk about capital gains.  Let say you purchase your pre-construction condo for $300,000 and once it is completed you sell it for $400,000 making a tidy $100,000 profit.  Not bad.  Now if you are in a 40% tax bracket then you would be taxed at 50% so you would owe them $20,000 ($100,000 x 40% x 50%).  But the tax agency has another big stick, in that if you make a false disclosure then expect another penalty of 50%.

If you never moved into the condominium then it will be an easy victory for Revenue Canada.

My advice, declare the income as do you really expect to win a fight with Revenue Canada.