Canada Revenue Agency (“CRA”) is taking a close look at assignments of pre-construction condominium agreements of purchase and sale, particularly in Vancouver and Toronto.
With the boom in condominium development in those cities, many pre-construction units are being purchased by investors, not end-users intending to reside in the units. As several years usually pass between the time that purchasers enter into their purchase agreements, and the time when the unit is built and ready to be occupied, investors have been able to assign their purchase agreements at a profit prior to final closing with the developer. CRA sees these transactions as a potential area of tax non-compliance.
As these assignments occur before the condominium is registered and before title to the unit changes, there is nothing registered in the provincial property register to indicate if an assignment has occurred – the land register will only reflect the transfer from the developer to the assignee. For that reason, CRA has sent letters to some developers requesting information about assignments of pre-construction purchase agreements. As many developers are reluctant to provide this information for fear of infringing on the privacy rights of the purchasers, CRA has obtained court orders compelling developers to provide the information.
Currently, 2810 transactions in Toronto are being examined by CRA and individual audits of purchasers may follow to ensure that taxes have been declared and paid on the profits generated by these assignments.
Speculation by condo investors in the Vancouver and Toronto markets is seen by many as contributing to rising condominium prices and a lack of affordable housing. The Ministers of Finance in both British Columbia and Ontario have indicated that they are open to considering the implementation of a register to document assignments. Knowing that CRA is looking to claim its share of the profits made on these assignments, this may discourage those investors who are looking for a quick flip rather than a long-term investment.