November 2017

CHBA recommends that members comply with CRA requests for information about their buyers by first insisting on a court order to release that information. This is to protect member businesses against any potential litigation vis-à-vis privacy. CHBA supports government efforts to address tax evasion; at the same time CHBA advocates that such efforts keep to an absolute minimum and administrative/red-tape burden on honest companies.

Background

As has been reported in the media, the Canada Revenue Agency (CRA) is investigating pre-construction condominium “flipping” or sales assignments in Toronto and Vancouver. Typically, this process involves the sale of a purchase agreement from one buyer to another prior to the actual closing of the underlying sales transaction. Persons or entities which engage in such assignment sales are required to report any resulting profit as income for tax purposes. CRA’s investigations seek to determine whether such income is being properly reported, and if additional audits need to be carried out to find tax evaders, should this not be the case.

Our understanding of the situation is that CRA initially requests developers and builders to voluntarily provide information on sales assignments for their projects. Where the developer or builder is unwilling to provide this information due to privacy concerns, CRA then seeks a judicial order for the release of this information.

The governments of Ontario and BC have also indicated that they are considering establishing a registry for pre-construction condominium sales so that sales assignments are a matter of public record.

While not relevant to CRA’s investigations, some observers consider that pre-construction flipping may contribute to escalating home prices.

Industry Considerations

• The issue for CRA is that some individuals or entities may use assignment sales to generate profits and then fail to declare and pay taxes on such profits – this would amount to tax evasion.
• CHBA supports in principle government efforts to hold accountable those involved in tax evasion and/or mortgage fraud. In conjunction with this, CHBA advocates that such efforts should keep to an absolute bare minimum administrative and red-tape burden on honest businesses.
• To date, CHBA has not received complaints or concerns from members about CRA’s activities in this area.
• While completed sales contracts are in the public domain through land registries, pre-construction sales information is not. Members should always comply with the rule of law, including the Privacy Act. Given privacy concerns, members should insist on releasing this information to CRA only in compliance with a court order. This would be prudent practice. This is not to stifle CRA efforts, but to protect member businesses against litigation vis-à-vis privacy protection of their buyers.
• CHBA participates in CRA’s efforts to address the underground economy, including sitting as a member of CRA’s Ministerial Advisory Committee on the UnderGround Economy, and in the Department of Finance’s work on the risk assessment profile for industry and review of FINTRAC regulations and guidance.

 

CHBA Position

While the industry supports efforts to address tax evasion, CHBA recommends that members request court orders before disclosing sales and assignment information to protect themselves from privacy complaints/litigation.

CHBA continues to stay abreast of the situation.