House Flippers Beware

We often talk about limitation periods when we talk about personal tax. Some taxpayers are relieved when they feel that a particular tax year is now statute barred and CRA cannot open the year up to further investigation, unless they suspect fraud. There are a couple of nuances here though — until you actually file the tax return for the year in question the clock does not start ticking. So, if you feel that your unfiled 2005 tax return is no longer an issue, you are wrong. The 2005 tax return will remain open until it is filed and assessed and the normal limitation period of three years goes by. We should not be getting too much comfort from years being statute barred anyway because CRA can always open a year if they have reason to suspect fraud.

Now to home flippers. There is a special rule for reporting the sale of real property, if the sale is not recorded on your return then there is no limitation period.

If you have sold property in the past and did not report it on your personal tax return because you felt it was your principal residence, then hopefully you are right. If the property was your principal residence and not reported no issue. If you flipped the property in a short period of time and did not report it, CRA is interested in you. As I have said in this space before, the 2016 taxation year saw the beginning of the requirement that all property sales be recorded on your personal tax return. For years previous to that, there was no requirement around principal residence sales and house flippers took advantage of this and did not report sales.

There is nowhere to hide — if you have flipped a house ever and not reported it — CRA can open that year and assess the return. If you feel that you are at risk you should consult your tax advisors.

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