British Columbia’s government has launched a registry aimed at tracking pre-construction property flipping and tax evasion in the province. The Condo and Strata Assignment Integrity Register, the first of its kind in Canada, is intended to improve transparency and fairness during real estate transactions, according to Bloomberg.
Analysts believe Ontario should follow suit and create a similar database of their own.
This new private registry requires developers in B.C. to collect and disclose information to the province concerning buyers who flip pre-construction condo contracts.
“This information will be shared with federal and provincial tax authorities so they can make sure taxes are paid,” said the province last week. “Collecting this information will also allow government to develop new taxation models in the future.”
Finance Minister Carol James believes the registry will help take “real action to moderate the condo market,” as results are already coming in from Metro Vancouver.
“Flipping” pre-construction condo ownership is also known as selling an assignment. These transactions are currently unregulated and do not require government reporting. Profits from a presale condo assignment are often lucrative and taxable, but this sector is believed to be an area that sees intense tax avoidance.
Further, condo assignments are believed to contribute to price inflation and market volatility in major Canadian markets.
Josh Gordan, professor at Simon Fraser University, believes the new B.C. policy change should help Ontario adopt similar government practices.
“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,” said Gordan. “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.”
Ontario’s government is beginning to work with the Canada Revenue Agency “to explore more comprehensive reporting requirements” to ensure proper taxes are paid on all real estate transactions.
The pre-construction purchase is a unique real estate sector. Pre-con units can be purchased with deposits that total around 20% over time, while the remaining balance is to be paid once the project is completed.
Selling an assignment allows “for speculation on price growth for the unit’s entire value between the initial purchase date and the flip.” One pre-construction unit can be resold multiple times before it is ever available for occupancy.