As we have written here and here, CRA is ALL over the Canadian real estate industry, assessing homebuyers, condo renters and everyone in between for GST/HST and income taxes related to use or sale of houses or condos on the suspicion of business or trading activities.
When using one's home or other real estate holdings for business or trading purpose (CRA calls this an "adventure or concern in the nature of trade"), significant tax consequences can arise, as highlighted in CRA ruling from back in 2020, reviewed below.
Real Property Trading in Condos
In this rulingCRA considers individual buyers purchasing and selling condo interests during pre-construction or construction phases (i.e., before it is available for residence) to be subject to taxation for both GST/HST (on the selling price) and income tax (on gains). CRA takes that position because it views the timing of these events (purchases and sales before actual use) as smacking of either business or trading activity. (The same rationale is also typically used by CRA in auditing and assessing house renovators for so-called "flipping").
While these same individuals will generally have a very different story (some purchasing for themselves; others purchasing for relatives; and all with a variety of reasons for having to get out of the deal, and why the assignment sale made sense), CRA is now assessing in this area and focused on two things.
First, the CRA is questioning whether the individual's primary purpose in acquiring the real property was "firm, fixed and settled" and unlikely to change, or merely a "tentative, provisional or exploratory" idea conditional on future events (i.e., maybe an intention to sell the property if it increased in value). Fixed is a good thing. Tentative is not, and militates towards the conclusion that perhaps the venture was in the nature of a taxable trading activity.
(This first question is often a "he said she said" sort of thing and sometimes difficult to prove).
The second question is more difficult, and asks whether the individual can prove, objectively, that they had reasonable prospects of accomplishing their goal of actually living in the residence within a reasonable time.
Put differently, the CRA is looking at the individual purchaser in question, and asking whether he or she had the resources necessary to acquire the complex for use as a place of residence either for themselves or a relative.
When the CRA is in doubt, it generally assesses, asserting that the assignment sale is taxable – generally requiring a timely and robust Notice of Objection to put that Notice of Assessment into dispute.
Takeaways
Sales of homes, condos, strata lots and other real estate holdings are no longer completely safe from taxation or CRA audit and assessment. The CRA seems to be on a revenue hunt – and has seemingly found a previously untapped source of taxation in Canadian real estate. Unfortunately, individuals on the receiving end of these assessments will need to file timely and robust Notices of Objection to put these Notice of Assessments properly into dispute.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
