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 email@example.com, and discuss our strategy for assisting taxpayers.