What are the federal tax obligations when buying, selling property?

The Canadian real estate market is active, particularly in some major Canadian cities like Vancouver and Toronto, says CRA.

Read: 3 ways to tap into real assets

But what are a client’s federal tax obligations when buying and selling property? CRA provides busts the following myths.

Myth – CRA has a role to play in reducing housing costs.

Fact – CRA does not have any role to play concerning the affordability of real estate. CRA has no influence over market-based or economic forces that influence the cost of housing, such as supply and demand, construction costs and market speculation.

Rising real estate prices do, however, create an incentive for real estate flipping. CRA has dedicated resources to ensure compliance with the tax rules for property sales and other real estate transactions. The extent of CRA’s compliance activities is detailed in How does the CRA address non-compliance in the real estate sector.

Myth – Real estate flipping is illegal.

Fact – Real estate flipping is not against the law. Flipping is a method of buying and selling real estate to earn income. Individuals may also use assignment clauses in real estate contracts to flip a property once or more before a final sale is made. However, all the money made on real estate flips, including real estate commissions and appreciation in value (the difference between the purchase price and sale price), must be reported to CRA.

Read: National home sales down month over month

Myth – The sale of a new or substantially-renovated home is GST/HST exempt if the home has remained vacant or has been occupied temporarily by the builder after it is completed.

Fact – In fact, generally, the GST/HST must be charged on sales of new or substantially-renovated homes that were built or substantially renovated for sale, even when the home has remained vacant or has been occupied temporarily by the builder after completion. Please refer to GST/HST Memorandum 19.2.1, Residential Real Property – Sales, for more details, including possible, limited exceptions. For more information on the GST/HST and housing, go to GST/HST and housing.

Read: Underweight real estate? That’s going to change

Myth – Non-resident real estate investors do not have to pay Canadian federal income tax.

Fact – A non-resident who sells any taxable Canadian property must notify CRA of the sale no later than 10 days after the date of the sale and pay an amount to cover the estimated taxes on that sale. A person’s residency status is determined on a case-by-case basis by considering a number of factors which include:

• residential ties in Canada;
• purpose and duration of visits outside Canada; and
• social and economic ties outside of Canada.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.