In a recent bulletin, the Canada Revenue Agency warned consumers about getting deceived into putting their hard-earned money in fraudulent real estate investment schemes.
The cautionary statement is especially important in light of the prevalence of real estate investment across Canada. The trend, along with stronger buying and speculation activity by foreigners, has been cited as the main factor in the “pronounced imbalances” readily apparent in B.C. and Ontario, the Bank of Canada said.
Nationwide resale volume has fallen by around 20% from the peak seen in 2016.
“House price growth has also slowed markedly. For the first time since 2013, it is running below income growth,” the central bank reported in its mid-May Financial System Review.
“Froth from rising expectations of house price growth has declined in housing markets in the Toronto and Vancouver areas over the past two years. While the Toronto market appears to be stabilizing, prices and resale activity continue to decline in Vancouver.”
According to the CRA, among the most sinister of these schemes are tax arrangements. These strategies falsely claim that consumers can get significant tax write-offs through limited-partnership real estate investments.
“It is usually heavily promoted as a product with a significant tax advantage and limited liability for the investor. The promoter of the scheme promises a tax write-off for more than double of what was invested.”
The CRA emphasized, however, that due to their very nature, the schemes will not be able to deliver on these promises.
“Limited partnerships are unique arrangements that provide investors with certain benefits similar to partnerships and corporate entities,” the CRA stated. “However, different than general partnerships, the investor’s liability is restricted to the amount they invested. Therefore, they cannot claim a higher tax write-off than invested.”
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