The condo markets in British Columbia and Ontario are booming. Condos are becoming increasingly popular as a first home, a downsize, a way to send children to university, or as investment assets. Many people purchase condos before they are built. Construction takes time, and considering how quickly real estate is appreciating these days, the value of a condo purchased pre-construction often rises dramatically by the time it is ready to move into.

For a variety of reasons, buyers may choose or be compelled to sell their pre-construction purchases. Construction is taking too long, their circumstances have changed, or something better becomes available. People frequently sell their pre-construction condos and then find themselves facing additional taxes, interest, and fines.

There's nothing improper with selling an apartment that's still under construction. The CRA is only interested in whether the rise in value is properly disclosed. The former owner may claim the condo as a primary residence or as a sale of capital property depending on when it was sold on the way to full completion. When selling a pre-construction condo before or shortly after completion, these claims are more difficult to make. This isn't to say the condo wasn't your primary dwelling or a valuable investment. It just means you must prepare to demonstrate that it was. The CRA can make assumptions in Canada, and it is your responsibility as a taxpayer to prove them incorrect.

The CRA will examine whether the acquisition and sale correspond to a claim for the condo as a primary dwelling, a capital asset, or commercial inventory. Differentiating between different types of sale characterizations can be extremely difficult. These factors include the rationale for the purchase and any supporting evidence, as well as the reason for the sale and supporting evidence. However, these two are only the tip of the iceberg.

Pre-construction condo contract sellers are classified as builders by the CRA. This implies you must pay both the capital gains tax (which has a 50% inclusion rate) and the HST (which applies to the deposit you receive when you sell and the profits from the price markup).

Homebuyers who are considering (or have already purchased) a new or pre-construction property are frequently confused about the HST rebate. "Who pays for HST on a new home?" and "How is the HST refund calculated?" are often asked questions. And rightfully so. The HST rebate can be substantial, with a difference of up to $30,000 in your bottom line.

TheRedPin has broken down the facts around the HST rebate in Ontario for a new condo or house to make it a little easier to comprehend the ins and outs of the rebate programme. The tips in this post are meant to serve as a starting point for first-time homeowners; it's vital to speak with your lawyer and accountant about the HST rebate.

The HST is frequently included in pre-construction project pricing. The builders, in reality, receive the HST rebate on your behalf. If the property is not your primary residence (i.e. an investment property), however, you will be charged a tax of 13% of the acquisition price. Make careful to account for this additional tax if you intend to use your house as an investment.

There is also a 15 percent Non-Resident Speculative Tax, as stated in the Ontario Fair Housing Act (NRST). Make sure to budget for this tax if you're not a Canadian citizen or a non-permanent resident holder.

Property taxes are also deductible according to the IRS. Resale homes usually have lower property taxes, depending on the state. While most tax incentives are available to both new and resale properties, a newly built home has a better chance of receiving them. Homebuyers can profit from tax returns before even moving in thanks to construction loans and property taxes, and the greater energy efficiency of new homes is likely to result in credit as well.

According to the reports, “an additional 13 percent tax will be imposed on the entire price paid by the second buyer to the original buyer” and “every new assignment sale … will be subject to a tax of up to 26 percent.” It is now abundantly clear that the tax will only be paid on the profit that is being earned by the "flipper," which refers to the first buyer who is selling the pre-construction contract to the second buyer.

This view is based on a thorough investigation of papers that, on the day of the budget, were not readily obvious — at least not to me and a large number of other stakeholders. They are known as Tax Measures: Supplementary Information and a Notice of Ways and Means Motion to alter the Excise Tax Act, and they are the kind of dry documents that are only interesting to people who work in the field of tax law and accounting.