CRA takes developers to court, seeks information on pre-sale condo flippers

The Minister of National Revenue is heading to court to compel a group of developers to hand over documents in a bid to learn details about buyers who flipped pre-sale contracts before construction was completed.

The federal government filed two applications in Vancouver's federal court office on June 29, naming the developers who are behind two high-profile Vancouver projects, namely the Marine Gateway project on South West Marine Drive and the Residences at West along on Manitoba Street False Creek in downtown Vancouver.

The Canada Revenue Agency (CRA) plans to take the corporations to court to determine if proper taxes were paid on profits. Specifically, it wants to know if buyers reported real estate profits as business income or capital gains.

Officials say they want to ensure taxes were paid on the transactions from real-estate flipping, which are often high.

CRA seeks contract details

Canada Revenue Agency officials say they want details about people who signed agreements with the developers to buy condo units, but then assigned that purchase agreement to another person before the units were constructed.

"Analysis of third-party data has revealed in the past that some flips are not being reported or incorrectly reported," a spokesperson for the CRA wrote in an email to CBC.

Flipping is defined as the practice of rapidly buying and reselling real estate for profit, and has become a high-profile issue in Vancouver's hot real estate market, inspiring rampant speculation.

The CRA's move took one developer by surprise.

"I have never seen this type of inquiry before in my short business career of 30 years," said Jason Hong, president and CEO of Argo Ventures, a developer behind one of the Vancouver projects named in court documents.

Hong says the CRA order is a concern for clients, and no developer would comply with such a request without a court order.

"We need to see if the court will allow this type of thing to be divulged," said Hong, adding that he will do what the court decides. 

Concerns about unreported profit

In Canada, profits from real estate transactions are deemed a capital gain — and are subject to tax — less any legitimate expenses associated with the sale.

The two applications in Federal Court name the following developers: PCI Gateway Residential Ltd. and PCI Gateway Residential GP Ltd., Executive-Argo False Creek (No. 1) Ltd., Executive-Argo False Creek (GP No. 1) Ltd. and 0742012 B.C. Ltd.

One developer questioned why the government did not simply ask for the information first.

"This lawsuit was served out of the blue, taking up the court's time and bringing in a team of federal lawyers from the outset seems wholly unnecessary and a costly procedure for all involved," said Tamara Tam, with Executive Group of Companies.

Other executives from these companies could not be reached for comment.

Court documents make it clear the developers are not the target. Rather, it's the buyers CRA wants to scrutinize.

CRA officials say real estate flipping often involves contractors, renovators, speculators or investors.

No response from the developers has been filed yet in federal court.