BC Tracking Condo Purchasers

Effective September 18th, 2018, the Ministry of Finance in the province of British Columbia (Canada) has introduced a new version of their property transfer tax return which asks for additional information which could be used by the Ministry of Finance, or the Canada Revenue Agency (CRA) to track condo flippers, or those individuals or businesses who purchase condos and rent them out.

The property tax transfer (PTT) return requires that individuals with a “significant interest” in a corporation or trust that acquires property must be identified, with some exceptions.

If, the purchase is made through a corporation or trust, this new legislation will require property developers to collect a database of pre-sale buyers and remit that list to the BC Government.

The change in the regulations have been implemented to reduce the opportunity for tax evasion and / or money laundering, which are believed to have contributed to the skyrocketing house prices in the province.

The New PTT Return will likely require information on all beneficiaries of certain trusts and corporate interest holders including their name, contact information, tax identifiers (SIN, ITN, BN), and citizenship.

The draft legislation titled the Land Owner Transparency Act is still in the consulting stage and the BC government has stated that the results of the consultations do not affect the new PTT return which came into effect September 17, 2018.

These changes pose real threats to the highly speculative pre-sale condo market in BC, and if successful, will likely be implemented in other large urban centres, such as Toronto, Montreal and then across the country.

In recent years, pre-sale buyers have made out like bandits, securing pre-sale contracts with no proof of funds, without having financing in place, or the ability to secure financing and in many cases these buyers have absolutely no intention of closing upon completion of the condo, instead, flipping the contract to other buyers at a profit, without paying the tax on the gain.

The CRA frowns on buyers who flip condo contracts once a profit has been realized and have cracked down on this process, albeit, not enough, and not just on those who have been taking part.  The CRA has also assessed buyers who have legitimately sold their units and who have met all of the requirements for ownership, however it’s much easier for the CRA to determine everyone is guilty than to have to pull the legitimate from the pile of illegitimate.

These contract flippers have been successful because there is no title registration through BC land titles which means the best that the CRA can do is take the developer to court in order to obtain the list of pre-sale buyers who have flipped their contract, or go to court and seek information through a Requirement for Information, but the CRA must have evidence to support their claim that buyers have flipped condo contracts without declaring the capital gain.

All in all, this is just another area where the CRA is tightening up regulations thanks to the BC Ministry of Finance, and we will soon see this process come to an end.  In the meantime, there will be a whole bunch of taxpayers who will be assessed by the CRA, and there will be a 50% Gross Negligence penalty attached to that assessment.

Taxpayers who have been assessed by the CRA and who have done nothing wrong, should contact inTAXicating Tax Services at info@intaxicating.ca, and discuss our strategy for assisting taxpayers.

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FIN to BN Conversion Process – CRA Press Release from October 2009.

FIN to BN conversion process If you filed a T5, T5007, T5008, T5013, or Registered Retirement Savings Plan (RRSP) Contribution Receipts information return in 2008 or 2009, the CRA will automatically convert your Filer Identification Number (FIN). A successful conversion will result in an RZ account number being added to your existing BN.

Note:
Filers of the T5018 information return will have the RZ account number added to their existing BN.  

The Contract Payment Reporting System (CPRS) requires construction businesses to record payments they make to subcontractors for construction services and to report these payments to the Canada Revenue Agency (CRA).  The CPRS was also developed to require contract reporting by Crown corporations (since 1998) and federal departments and agencies (since 1999).

The conversion will occur throughout November and December 2009. You may have been mailed a letter advising you of your new RZ account number once it has been created.  If you did not receive one you will need to have the authorized representative contact the CRA at the general enquiries line, 1.800.959.5525 to set one up. 

Note:
If your filing is done by a branch office or a third party, such as an accountant or service bureau, advise them of your new account number.

Some FINs may not convert due to discrepancies between the FIN and the BN account information. If you do not receive notification by mail of your RZ account number by the end of December 2009, or you require an additional account to suit your business needs, contact the CRA.

If you have received notification of your RZ account number, but you are no longer required to file any of these information returns, you can have the account closed by contacting the CRA.

Note:
If you will be filing a TFSA return, you will not be part of this conversion. Go to TFSA Annual Information Return for more information.