Skip to main content

Condominiums under construction in the Lakeshore Blvd. West and Park Lawn Rd. area of Toronto, on Oct. 19, 2017.Fred Lum

The B.C. government's plan to curb real estate tax evasion with a database that will track preconstruction condominium flipping puts pressure on Ontario to adopt a similar measure, analysts say.

The private registry, which would be the first of its kind in Canada, would require developers to collect and report "comprehensive information" to the province about buyers who flip presale condo contracts.

"This information will be shared with federal and provincial tax authorities so they can make sure taxes are paid," the province said in announcing the database as part of a package of housing policies contained in its budget on Tuesday. "Collecting this information will also allow government to develop new taxation models in the future."

Paper flips of preconstruction condo contracts, also known as selling on assignment, are currently a private, unregulated corner of the industry with no rules requiring developers to report transactions to the government. Though profits from the often-lucrative practice are generally fully taxable, the presale flip sector is believed to be a hotbed of tax avoidance. Assignment sales have also been blamed for pushing up housing prices and adding volatility to the country's two largest housing markets.

The B.C. government's move to track presale condo flips should help encourage Ontario to do the same, said Josh Gordon, a professor at Simon Fraser University in B.C. who researches the Vancouver and Toronto housing markets.

"It's long overdue. Governments have not carefully tracked or regulated the presale sphere and any efforts to increase the transparency of that sector I think are welcome," he said. "It's hard to see why you wouldn't want greater transparency around these types of matters, especially when there does appear to have been a history of tax evasion."

The Ontario government said it is working with the Canada Revenue Agency "to explore more comprehensive reporting requirements" so that correct taxes are paid on real estate transactions, said Orli Giroux Namian, spokeswoman for Finance Minister Charles Sousa.

The B.C. government's move comes as tax evasion in the real estate industry is coming under greater scrutiny. The CRA is cracking down on people who failed to pay taxes on profits from flipping preconstruction condos in Toronto and Vancouver. But in order to conduct audits, the agency was forced to obtain judicial orders requiring developers to provide information, the only existing route available. Presale condo flips are also, in some cases, vehicles for money laundering and other shady activity.

The CRA said it welcomed B.C.'s plan.

"Access to this information will be beneficial in CRA's ongoing efforts to detect and crack down on tax evaders," spokesman Etienne Biram said by e-mail. The agency did not respond to a question about whether it would urge the Ontario government to also create a registry.

Developers reacted mildly to the registry, saying it would create extra work but that people should pay their taxes. A meeting has already been scheduled with the provincial government to discuss details of the reporting process, said Anne McMullin, president of the Urban Development Institute. "We're fully supportive of working with the provincial government to develop a system that works."

A government spokeswoman said the province would publish aggregate information but that further details, including when the database will be created, are not yet available.

For real estate speculators, betting on soaring prices, presale condo flips can mean large profits. Preconstruction units can be bought with deposits of only about 20 per cent over time with the balance not required until a building is completed. However, selling condos on assignment allows for speculation on price growth for the unit's entire value between the initial purchase date and the flip. Although many developers say they discourage assignment sales, individual condos are sometimes flipped multiple times before they are even ready for occupancy.

Questions have also been raised over preferential access to preconstruction condos granted to industry insiders, whose clients – including both domestic and foreign investors – are able to buy the most desirable and affordable units in popular developments before the public can even enter showrooms.

This detached home didn't sell when it was first listed, but when it hit the market the second time, it sold in three days for $37,000 under asking.

Your Globe

Build your personal news feed

Follow the author of this article:

Check Following for new articles