Canadian tax man and flipping property...caution!

On Sept. 6, 2012, in the case of Sylvie Giguère (tcc-cci.gc.ca), Ms. Giguère and her spouse lost a court battle on this issue. The couple had sold seven single-family residences within a six-year period, claiming the PRE on each sale.

In this case, they had owned the properties for periods ranging from just over three months to just under two years. CRA successfully argued that the profits should be taxed as business income and that, in addition, gross negligence penalties should apply for failure to report the income.

In this case, the court concluded that the intention of the taxpayers was to buy the properties and sell them for a profit, not to live in each property as a principal residence. This intention, along with the frequency of their “flips” led the court to the conclusion that, for this taxpayer, the real estate sales were an “adventure in the nature of trade.”

 The criteria

 If the taxman considers your activity to be an “adventure in the nature of trade” he’ll look to tax you on any profits as business income. In its publication IT-459, Adventure or Concern in the Nature of Trade, CRA says that: “It is a general principle that when a person habitually does a thing that is capable of producing a profit, then he is carrying on a trade or business notwithstanding that these activities may be quite separate and apart from his ordinary occupation.”

The court case Happy Valley Farms Ltd. (1986) established certain criteria as the benchmark for taxpayers and the CRA to consider when assessing whether an activity is an adventure in the nature of trade.

That decision established the following criteria to look at: (1) the nature of the property sold, (2) the length of the period of ownership of the property, (3) the frequency or number of other similar transactions by the taxpayer, (4) the work expended to make the property more marketable or to attract purchasers, (5) the circumstances responsible for the sale of the property, and (6) the taxpayer’s motive or intention at the time he acquired the property.

It appears that, in the case of the sale of principal residences, the courts and CRA look most closely at your intention at the time you purchased the properties and the frequency or number of times you’ve completed similar transactions.

If you’re going to buy and sell properties and you hope to use the PRE to shelter the properties from tax, be sure to look at the six criteria established in the Happy Valley court decision and structure your transactions accordingly.

Time to buy? Florida real estate on the rebound.

Vacation property prices is Florida are on the rise but there are still deals to be had.


Housing prices in the sunshine state are rebounding but there are still bargains to be had, according to a local realtor specializing in snowbird properties.

Residential real estate prices in South Florida have risen more than 4% in the last year, far outpacing the national average, according to the S&P/Case-Shiller Home Price Index. Still, prices are 45% off all-time highs seen in late 2006, early 2007.

The average condo in popular Southwest Florida now sells for $315,000 while the average single-family home now sells for $450,000.

Average selling prices can be skewed by a minority of very expensive sales and areas like Palm Beach, Naples and Miami are favourites among luxury buyers.

Vacation properties can sell for much less than the average. Indeed, the overwhelming majority of Canadian buyers spent less than $200,000 on their Florida purchase this past year while the median price range was $100,000-$199,000.

A portion of these were properties in foreclosure. In fact, these so-called “distressed sales” account for roughly 20% of total sales in Southwest Florida.

January through March is Florida’s busiest buying season as snowbirds from across the Northern U.S., Canada and Europe descend on the Sun Belt.

Itsy Bitsy Teenie Weenie Condo's

Squeezed between the mountains, the Pacific Ocean, the U.S. border and the Fraser Valley, where development on agricultural land is restricted under B.C. law, municipalities have been struggling to keep housing affordable near the core.

People were shocked when the first condo towers went up in downtown Vancouver in the 1990s featuring units of 450 square feet or less — about the size of a nice hotel suite and about half the size of a conventional apartment.

But a new development in suburban Surrey is pushing living space past the 300-square-foot barrier with so-called "micro suites," according to Les Sohar

The proposed project, called Balance, would contain 56 suites, the smallest of which would be 290 square feet, and 33 of the units would be 305 square feet or smaller.

The largest suite, a one-bedroom unit, would be a palatial 653 square feet and be priced below $180,000, Sohar.ca reports.

The developer said it expects to begin pre-selling the micro suites in January if Surrey City Council approves.

Affordability is the key, says Les Sohar or sohar.ca. Asking prices will start at $109,000 but, given the softening condo market in the Vancouver area, they may come down.

"If you can afford the $6,000 down payment, and you make a salary of $17 per hour, we have a home for you," Sohar says.

Balance, located in a once dodgy part of Surrey called Whalley, is part of a global trend, he says.

"Real estate prices in the Lower Mainland are among the richest in North America," Sohar said in a news release.

"In cities like New York, Tokyo and Paris they found a solution - build smaller but build closer to amenities.