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Investors call for tax help on condo losses

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Guest | 28 Mar 2014, 09:21 AM Agree 0

Investors believe that any monetary losses incurred in condos should be tax deductible. As the CRA continues to crack down on condo flippers as part of a special project, irate investors believe the taxman should consider all income and expenditure.
Commenting on CREW’s report that the taxman is targetting condo owners, one reader said that the CRA “cannot have it both ways and if it assesses such gain (profit upon selling), then it has to allow for loss too.” Adding that more investors are losing cash on pre-sale condos, the investor says any loss should be as part of a deductible against income.
Sam Elgohary, real estate broker specialising in pre-construction condos, says flipping in this property type is now “dead” and investors need to adopt to today’s new environment. “Investors need to see condos as long-term investment, there are not short-term anymore. You need to build equity in them,” he tell CREW.
“I would advise a minimum of holding them for a minimum of five years.” Since last April, almost 600 tax audits have been undertaken by the CRA in its new “condo project.” Almost half of these audits led to penalties.
  • BC broker | 30 Mar 2014, 04:19 PM Agree 0
    It seems the issue here is that once an investor is caught for tax evasion (why else did half the audits result in penalties?) the investor doesn't like the fact CRA then disallows expenses or losses associated with that transaction.

    The reality of flipping paper is that the original buyer's objective is to avoid having to complete the purchase of a condo and incurring expenses such as land transfer tax, HST, GST, etc., instead finding a buyer to assign the contract to prior to completion to take the place of the original buyer. In the ideal world the original purchaser would then not leave a record of ownership at land titles, and could then "avoid" disclosing this profit as income.

    The problem is most times the original buyer ends up completing the original purchase because they have been unable to sell the contract prior to the completion date, creates a paper trail through land titles, sells the property, and then still tries to avoid disclosing the profit to CRA. When caught, they try to claim expenses and a potential loss, however CRA is at that point not going to be sympathetic to that investor.

    This should not be confused with an investor purchasing a property and renting it out, and if in the process of ownership of this investment, may incur a net loss between the rental income earned and the expenses of operating the property over a period of time. A minimum holding time frame would help provide clarity to this issue of differentiating between income and capital gains, But also if the investor had properly disclosed the transaction and the resulting income in the first place, he would probably have been allowed to deduct expenses associated with the transaction. Just like any other business venture...
  • BC broker | 30 Mar 2014, 04:19 PM Agree 0
    It seems the issue here is that once an investor is caught for tax evasion (why else did half the audits result in penalties?) the investor doesn't like the fact CRA then disallows expenses or losses associated with that transaction.

    The reality of flipping paper is that the original buyer's objective is to avoid having to complete the purchase of a condo and incurring expenses such as land transfer tax, HST, GST, etc., instead finding a buyer to assign the contract to prior to completion to take the place of the original buyer. In the ideal world the original purchaser would then not leave a record of ownership at land titles, and could then "avoid" disclosing this profit as income.

    The problem is most times the original buyer ends up completing the original purchase because they have been unable to sell the contract prior to the completion date, creates a paper trail through land titles, sells the property, and then still tries to avoid disclosing the profit to CRA. When caught, they try to claim expenses and a potential loss, however CRA is at that point not going to be sympathetic to that investor.

    This should not be confused with an investor purchasing a property and renting it out, and if in the process of ownership of this investment, may incur a net loss between the rental income earned and the expenses of operating the property over a period of time. A minimum holding time frame would help provide clarity to this issue of differentiating between income and capital gains, But also if the investor had properly disclosed the transaction and the resulting income in the first place, he would probably have been allowed to deduct expenses associated with the transaction. Just like any other business venture...
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