Real estate reforms have dominated the Canadian news cycle for the past year or so. Between stress tests, foreign buyer taxes, and everything else that's been going on, there's always been some sort of pressing matter in the spotlight.
Now, the focus has shifted to the flipping of presale and preconstruction condos, a practice with a loose degree of oversight that has allowed speculators to potentially evade legal responsibilities, and has prompted the Canadian Revenue Agency (CRA) to partner with the Ontario and British Columbia governments to try and close the loopholes.
The lack of oversight, in this case, refers to the fact that certain provinces don't have publicly accessible registries that track presale condo purchases in the same way that there are for the resale housing market. Since only the final purchaser is being recorded on public land registries, it means that the in-between transactions don't get acknowledged and archived unless someone goes well out of their way to track them.
And if no one is doing that—well, that's when there's opportunity for tax evasion.
"The system is suceptible to tax avoidance so we're taking steps to close those opportunities," said Ontario Finance Minister Charles Sousa. "Just like grocers need to disclose all their sales, in this case developers are disclosing the sale but that doesn't happen until the very end of the transaction. In between there is activity and it should be disclosed."
Sousa and others have emphasized that the practice of flipping presale condos itself is not inherently bad. It is just when it involves shady tax dealings that it becomes problematic.
The CRA has already done some preliminary investigation of its own. Last year the organization obtained court orders that compelled 44 developers in the Toronto area to disclose information about their customers in 69 condo projects. Among them were 2,810 preconstruction flips; 100 of them had been targeted for audits, and 15 had completed. A third of those 15 revealed approximately $70,00 of "understated income taxes owing."
It's not hard to imagine the full extent of "understated income taxes owing" stretching into the millions. It'll now be on the backs of the CRA, Ontario, and British Columbia to dig up the rest.