Personal Finance

Flipping pre-construction condo and CRA

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  • May 2nd, 2015 12:22 pm
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[OP]
Deal Addict
User avatar
Mar 23, 2008
4059 posts
451 upvotes
Toronto

Flipping pre-construction condo and CRA

Hi, just inquiring about the CRA crackdown on flipping pre construction condos. Which is correct in CRA's eyes?

Example:
Purchase price of condo: $200,000.00
When flipped, a profit of $30,000 is made before unit is complete. Title is transferred to another buyer.
Does CRA tax just the profit or the entire purchase price?
14 replies
Banned
May 12, 2004
9756 posts
4135 upvotes
Ottawa
CRA taxes the entire thing.

- No GST/HST new housing rebate on the 200K
- CapGains on the 30K
Deal Addict
Dec 10, 2012
3844 posts
1491 upvotes
Canada
capital gains on 30k so you're paying tax on 15k only
Deal Expert
User avatar
Jul 30, 2007
32069 posts
19282 upvotes
Toronto
if you do this sort of things more often, CRA sees your flipping as income, rather than CG.

btw, are you sure the builder will let you flip the deal ? You don't have title at all, unless you are going to pay a hefty fees to the builder as Assignment
Deal Addict
Jun 20, 2011
2081 posts
1034 upvotes
VANCOUVER
If the builder lets them it's usually written in their contract. On average the builder takes 5%.
Deal Addict
Nov 29, 2005
1290 posts
184 upvotes
Winnipeg
They really are cracking down on "flipping" so make sure you have any and all documentation you need. Also if your employment (or the employment of your partner) is somehow related to housing or the housing industry then you are at greater risk of it being deemed income.
Jr. Member
Dec 25, 2013
104 posts
27 upvotes
Vaughan
Don't forget that land transfer tax, lawyers fees and other acquisition costs are a part of the ACB.
Deal Expert
Feb 29, 2008
29093 posts
4782 upvotes
Montreal
Noelnoel wrote: Don't forget that land transfer tax, lawyers fees and other acquisition costs are a part of the ACB.
Yup. i hope those numbers (i.e. 30k gain) are fictitious, because that will barely cover the costs of the transactions.
Jr. Member
Dec 25, 2013
104 posts
27 upvotes
Vaughan
Land Transfer Tax = $3,550 on $200K, Legals at least $1,450 for buy + sell, HST = 13% on $200K = $26K & no rebate.

Total = $31K and that doesn't include any selling commission!

Unless any of this is included in the $200K 'purchase price' above, OP didn't make a dime. He lost money.
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
When a property is flipped before it is completed it's an assignment. The flipper does not pay land transfer tax as they've not assumed Title. Title will be transferred by the builder to the closing buyer who is then responsible for the land transfer tax.

It is possible that the CRA will consider the assignment as income and not a capital gain.
Deal Addict
Jul 29, 2006
4163 posts
998 upvotes
are LTT and HST even included? aren't those costs associated with the closing costs of a pre-construction condo?
Deal Fanatic
User avatar
Jan 17, 2002
7673 posts
906 upvotes
Toronto
Are you flipping after the closing, not assigning?
Deal Expert
User avatar
Jul 30, 2007
32069 posts
19282 upvotes
Toronto
No LTT or even legal fees on transaction that title does not pass as OP intends to flip / assigned it before completion of condo (title transfer).

Some builders will consider the assignment if OP is willing to do 50/50 split on the gain (as fee), some builders will not even consider assignment at all and will make you wait until buyers complete their purchase agreement (i.e. contractual closing and title transfer), then buyer can do whatever they want afterwards, in this case, OP will have to adjust his ACB on the purchase price (to include all closing costs).
Deal Expert
Feb 29, 2008
19385 posts
17854 upvotes
Tarrana & The Ri…
After all the costs/fees etc, your profit is going to be all but wiped out.

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