Buying To Assign
An assignment is a sales transaction where the original buyer of a property allows another buyer to take over the buyer’s rights and obligations under any property contract before the original buyer takes possession of the property. The other buyer – or assignee – in this case, is the one who completes the deal with the seller. Buying to assign can be a way to purchase an income property as the second buyer might have different intentions than the first. Therefore, you must report any profit from an assignment sale as business income in the tax year to which you assigned your rights. If the property is a new build and not yet occupied, the total amount received from the assignment sale, including any deposit paid, is subject to HST. For more information on assignment purchases, please visit this website.
Buying To Flip
House flipping has become fairly common these days. This is a scenario where someone purchases a home, performs extensive renovation, and quickly after the renovations are complete, lists the home for sale to earn profit. While the buyer may have lived in the property during the renovations, this does not entitle them to the principal residence exemption and therefore they are also obligated to report any profit when buying to flip as business income.
Buying To Build And Sell
Similar to flipping, buying to build and sell involves a buyer purchasing an empty lot of land and building a property, or purchasing a house that is demolished and replaced with a new build. Just like with buying to flip, it doesn’t matter if the property was used as a primary residence during the building or renovation, it is not considered as the principal residence and therefore you are not entitled to the principal residence exemption. Any profit from building the new property on the land must be reported as business income.
Buying To Create Rental Income
If you are looking to buy a property solely to earn rental income, you must report any profit as capital gain when selling.
It is important to report your profits correctly as the real estate sector is regularly audited by the CRA. If you do happen to be selected for audit, be prepared that the CRA will investigate:
● The type of property sold
● How long you owned it
● Your history of selling similar properties
● Whether you did any work on the property
● Why you sold the property
● Your intention in buying the property
Tax implications for selling income properties don’t have to be overwhelming! If you would like to learn more please reach out to our team or a trusted financial advisor.
