B.C. condo-flipping register 'one more pressure' on the market
By AdvocateDaily.com Staff
A new online register in British Columbia aimed at tracking the flipping of pre-sale condo units represents an additional layer of expense and reporting in the market that is largely unnecessary, and it's a step that is unlikely to achieve the government’s goals of curbing tax evasion and high housing prices, Vancouver corporate lawyer Jonathan Reilly tells The Lawyer’s Daily.
Currently, the buyer of a condo unit can flip their contract assignment to another purchaser for a higher price than they paid for it prior to the completion of the building without any oversight, says the article — and the government says the practice of pre-sale flipping has been a factor in driving up real estate prices and in facilitating tax evasion.
The Condo and Strata Assignment Integrity Register (CSAIR) will require developers to provide information on the identity and citizenship of those doing contract assignments, which the government says will ensure that people who assign condos are paying the appropriate income tax, capital gains and property transfer tax. Developers are required to collect and report comprehensive assignment information through the register and file quarterly, with the first report due to the government April 30 and a filing fee per assignment of $195, reports The Lawyer’s Daily.
Reilly, founder of English Bay Law Corporation, tells The Lawyer’s Daily that developers should be looking at their pre-sale agreements to see if they limit the terms under which a contract can be assigned, and lawyers working with purchasers making assignments should ensure their clients are informed that the fee needs to be paid and told what type of information must be disclosed.
“I haven’t seen the forms on this yet, so I don’t know what the regulations are on this yet in terms of what exactly is going to have to be disclosed,” he says.
“Most developer contracts already restrict assignments, so you can’t assign without the consent of the developer. Then it becomes a practical issue that developers need to be aware of the fee and make sure the person who wants the assignment pays the fee,” he adds.
In addition, Reilly says, the new register may bring an issue with the GST to the forefront.
In new construction, he tells The Lawyer’s Daily, GST applies to the purchase price, with the original deposit forming part of that price. The Canada Revenue Agency (CRA) has taken the position that when the contract gets assigned, the “assignment price,” on which GST is calculated and payable, is made up of both the uplift on the original purchase price plus reimbursement to the original purchaser of the deposit.
“That makes no sense at all because you pay the GST on the entire price when you complete the purchase of the property, but CRA is treating it like two transactions where there is no input tax credit for the first transaction. It’s like applying GST twice on the amount of the deposit,” he says. “And that can be a very significant amount of money, and it’s going to bring that problem right into the open.”
Ultimately, Reilly says he doesn’t think the new registry will have the intended effects on tax evasion and housing prices. Instead, he says, the government should be focusing its efforts on addressing issues such as increasing supply in the rental market and streamlining approval processes for development rather than “adding a layer of expense and a layer of reporting that is probably unnecessary.”
“In and of itself, the impact [of the register] is probably very small, but it’s just one more pressure in the market that is negative — I don’t expect it will increase sales and I don’t believe it will improve prices,” he says.
“But it is indicative of a government that doesn’t actually seem to give a lot of thought of the impact of its policies on privacy and other impacts other than just generating revenue,” he adds.