Federal Tax Obligations When Buying and Selling Property in Canada

canada-revenue-agencyThe Canadian real estate market is active, particularly in some major Canadian cities like Vancouver and Toronto. Questions have been raised about what federal tax obligations the buyers and sellers of real estate in Canada must meet, and how the Canada Revenue Agency (CRA) ensures tax compliance on these transactions.
This fact sheet is intended to answer these questions and address some myths about real estate transactions in Canada and the CRA’s role in administering the tax rules that apply to these transactions.

Myth – The CRA has a role to play in reducing housing costs.

Fact – The CRA does not have any role to play concerning the affordability of real estate. The CRA has no influence over market-based or economic forces that influence the cost of housing, such as supply and demand, construction costs, and market speculation.

Rising real estate prices do, however, create an incentive for real estate flipping. The CRA has dedicated resources to ensure compliance with the tax rules for property sales and other real estate transactions. The extent of our compliance activities is detailed in How does the CRA address non-compliance in the real estate sector. This work helps to maintain the fairness of our tax system.

Myth – Real estate flipping is illegal.

Fact – Real estate flipping is not against the law. Flipping is a method of buying and selling real estate to earn income. Individuals may also use assignment clauses in real estate contracts to flip a property once or more before a final sale is made.

However, all the money made on real estate flips, including real estate commissions and appreciation in value (the difference between the purchase price and sale price), must be reported to the CRA.

Myth – The sale of a new or substantially-renovated home is GST/HST exempt if the home has remained vacant or has been occupied temporarily by the builder after it is completed.

Fact – In fact, generally, the GST/HST must be charged on sales of new or substantially-renovated homes that were built or substantially renovated for sale, even when the home has remained vacant or has been occupied temporarily by the builder after completion. Please refer to GST/HST Memorandum 19.2.1, Residential Real Property – Sales, for more details, including possible, limited exceptions. For more information on the GST/HST and housing, go to GST/HST and housing.

Myth – Non-resident real estate investors do not have to pay Canadian federal income tax.

Fact – A non-resident who sells any taxable Canadian property must notify the CRA of the sale no later than 10 days after the date of the sale and pay an amount to cover the estimated taxes on that sale.

A person’s residency status is determined on a case-by-case basis by considering a number of factors which include:

  • residential ties in Canada
  • purpose and duration of visits outside Canada
  • social and economic ties outside of Canada

For more information, go to Non-residents of Canada.

What can you do?
If you suspect that someone has not reported income or GST/HST related to a real estate transaction or any other type of transaction, you should contact the CRA’s National Leads Centre. Your identity will not be disclosed, and you can provide information anonymously. For more information, go to the Informant Leads Program.

Taxpayers who have engaged in real estate transactions and have not reported them or have not correctly reported them to the CRA can go to How to change your return to obtain information on how to correct their tax affairs.

For more information on the tax-related obligations of vendors and purchasers, go to Disposing of or acquiring certain Canadian property. For more information on the CRA’s compliance activities, go to Compliance Programs.