The British Columbia and Ontario condo markets are hot. More and more people are buying condos as a first home, to downsize, when sending children to university, or as investment properties. Many people buy their condos pre-construction. Construction takes time and given how fast property appreciates these days, the value of the condo bought pre-construction often increases significantly by the time they are ready to move into.
Buyers may choose or be forced to sell their pre-construction purchases for many reasons. Construction is taking too long, their circumstances change, or something more appropriate comes along. Often peoplesell their pre-construction condo and unexpectedly end up owing additional taxes, interest, and penalties.
There is nothing inherently wrong with selling a pre-construction condo. Whatthe CRA is looking for, however, is whether the increase in value is reported correctly. Depending on when in the path to final completion the condo is sold, the former owner may claim it as a primary residence or as a sale of capital property. These claims are harder when selling a pre-construction condo before completion or soon after completion. This doesn’t mean the condo wasn’t your primary residence or wasn’t capital property. It just means you have to prepare to prove that it was. In Canada, the CRA can make assumptions and you, as taxpayer, have the onus of proving them wrong
The CRA will look to see whether the purchase and the sale match a claim for the condo as a principal residence, a capital property, or inventory of a business. The considerations in differentiating between the different characterization of the sale can be very complex. These considerations include the reason for the purchase and any proof for that reason, and the reason for the sale and proof of those reasons. These two, however, are just the tip of the iceberg.