Court Determines Realtor Has To Pay Income Tax Rates On RE Flip Profits – “The CRA discovered that Giusti had bought and sold seven condos in seven years.”

“When you sell a property that isn’t your principal residence and make a profit, half of the amount is taxable. This is the so-called capital gains tax and it’s pretty straight forward, but every situation is different. It all depends on how the Canada Revenue Agency views the transaction.
Real estate agent Romano Giusti bought a condo on Richards St. in Vancouver in November 2006 and re-sold it in June 2007 for a profit of $30,831. When he filed his tax return, he paid no tax on the profit, saying it was his personal residence.
The CRA re-assessed this return and discovered that Giusti had bought and sold seven condos in seven years. He argued that he intended to make the Richards St. condo his personal residence, but changed his mind because of the street noise, irresponsible renters and pets in the building. So, he moved.
Giusti appealed and lost. In a case heard on January 25, 2011, Judge G.A. Sheridan found that Giusti was flipping houses and so was not entitled to the principal residence exception. He also penalized Giusti.
For most people, if you make a $30,000 profit, you only would pay tax on $15,000. In this case, the court found that because Romano was in the business of buying and selling homes, he had to pay tax on the entire profit.”

– from ‘Selling a condo? Beware the taxman’, moneyville, 3 Aug 2012

We should all applaud the CRA for pursuing tax fraud. It is very important that citizens feel that we are all being taxed fairly.
From a Vancouver RE perspective, this story is perhaps more important in that it tells of a realtor buying and selling seven Vancouver condos in seven years. How much has this been happening? How many realtors in Vancouver own multiple properties? What implications does that have in the event of a downturn?
– vreaa

42 responses to “Court Determines Realtor Has To Pay Income Tax Rates On RE Flip Profits – “The CRA discovered that Giusti had bought and sold seven condos in seven years.”

  1. If you’re an investor or business owner, the government is your silent partner, whether you like it or not. The government doesn’t put up a single cent of capital, and they risk absolutely nothing if a venture fails. Yet if it succeeds, they’ll take a handsome share of the profit.

    In any other context, this sounds absurd. If I said to you, “Cut me in for a piece of your deal, and in exchange, I will do absolutely nothing…” you would rightfully tell me to F off.

    Yet somehow governments get away with this… and it’s simply the accepted norm.

    Of course, statists contend that governments provide valuable services which people are obliged to pay for; it’s the old “you didn’t build that” argument. This is total bunk.

    Even if one concedes that governments build the infrastructure which makes business possible, it’s plain to see that for every road, port, and title office, there are dozens of debilitating regulations which make things more difficult for everyone.

    On the flip side of this coin, government also takes its ‘fair share’ of people’s labor. From farmers to physicians, government treats ALL workers like stupid milk cows.

    They take a big piece of your labor, then they take an extra piece in payroll and social tax. Then they tax you on what you spend, and then again on what you save. Finally they steal whatever you have left over through inflation.

    • …and in return, you don’t have to go bankrupt if you find out you need chemotherapy.

      Everyone loves public services but nobody wants to pay for them.

      Admittedly, government is always headed by crooks.

    • I’m always amused by pollyannas such as yourself. How, in your ideal world, did your parents accumulate enough surplus and education to enable them to turn YOU into a maximally productive member of society? I think you would have ended up as an illiterate child labourer, perhaps down in the mines. Somebody would have profited from your labours, but it wouldn’t have been you. And if you’d gotten mouthy about it, you would’ve been killed.

      Government is nothing more than your fellow citizens telling you what your rights and obligations are here. Don’ like it? Move! There’s plenty of places on earth with no government, if that’s your ideal. Send us a postcard from Somalia.

      • look out!

        he’s going Galt!

        no one’s gonna hold him down

      • Yellow Helicopter

        Here here! I’ve always been so grateful to live in a country like Canada and gladly pay my taxes. The evidence of its use is all around me- schools, parks, roads, etc.

    • I’m surprised you managed to pull your nose out of Atlas Shrugged long enough to type all that.

      I tend to be right wing, and lean towards less government, not more. But I’m just as amused by libertarian nut-jobs as I am by Marxist cranks. Both believe in some Utopia that has never existed. Both insert their heads equally far up their own behinds, the better to ignore the glaringly obvious flaws in their ideologies.

      By the way, the Internet that we are communicating over right now was invented by the US military, the most expensive taxpayer-funded organization on earth. If you want to be a libertarian puritan, you must boycott the Internet at once. And don’t let me catch you driving on paved roads. Them there roads were created with stolen money I tells yah! Stolen from you and me!


    • Nice post Tom, but you will not get any fans here. Most commenters here are socialists.

      • Wow! Adam Smith must have been a socialist, then.

        As for the Tom’s “contribution” to this topic, I find the complete lack of any understanding of the complex connection between the market and the state mystifying. Go and actually read some Adam Smith, fer chrissakes!

      • I’d like to see an end to the unrestrained socialization of credit risk through government guarantees and monetary policy. I find the unintended consequences of this to be far more perverse than direct social spending. It is regressive in the extreme. Furthermore, the system is an extra degree removed from our elected representatives, which is not to be confused with “fair”, and the oversight and regulation is incestuous at best.

      • Forget it angryslav. The cognitive dissonance is so strong with paultards like bubbly that the voice of reason will never penetrate their thick skulls, much less the walls of their parents basement. In the mind of libertarian shitheads the world over, their extreme right free market paradise seems like an attainable reality.

      • Ad hominem is the best you can do, matt. At least you don’t have to bother with facts and arguments.

    • Where do you think government money goes? It might be paid back into society in places you disagree with, and maybe not to your industry, but the majority is returned as investment to society from schools and public services to infrastructure. ( Speaking of: has anyone looked at the monetary velocity of taxes?)

      So, whatever. Maybe YOU, friend, are a superman who built everything your own damn self and never took any investment from anyone: but I know I’ve been invested in. From water to sewage to garbage to school to my relative safety to the fire department to living in non-slums to every library book I’ve read to my university education to the fact that I have teeth in my head, I have been invested in. And I merrily pay my taxes, letting down the rope for the following hard working folks. I had a single mother and abject food-insecure poverty, but my mom worked hard and used what she could – student loans, babysitting, subsidized-dental-for-kids. We were at that level of poverty where no money means no choice. Our housing was never great: vermin, landlords slow-to-fix problems, cold. However, without legislation, we would have been living in far less safe slums, far more vulnerable to infection, violence, and accident.

      So taxes have enabled our success. My mom is professional and has paid back her student loans. My sister and I have our teeth and our health and our education and the vision that better is possible. We are more contributing that our mom was at her age. We pay our taxes, too, at a much higher rate than we would have otherwise. Congrats; you have had good return on investment.

      Either you lift people like us up, or society ends up paying for its desperate anyway. (Are there no prisons? Are there no workhouses?)

  2. What about income from “mortgage helpers”? How much of that goes unreported & untaxed, leaving the rest of us to make up the difference.

    • And what about those who are claiming the tax deduction on mortgage interest when the amateur landlord purchased the property not as an investment but as a primary residence?

  3. “Could be worse.” For example, RomanoTheRealtor Giusti’s legal fees and tax judgements might reduce him to…. Muhahahahahahah ha….

    Renting. From BC Housing. Accordingly, here’s your Quote ‘O TheDay, DearReaders…. (and no, they’re not talking about OweLympicVillage. This time.)….

    “The things I’ve seen! Needles all over the floor. Blood on the walls.… Overflowing garbage, fecal matter. You come into the place and it just stinks.” – Shawna Taylor, former MarbleArch resident

    “They’re all crack shacks and brothels…” – Don Brown, formerly of Atira Property Management

    [CBC] – Public housing in Vancouver called ‘crack shacks and brothels’:
    CEO admits filthy, crime-ridden buildings in ‘abysmal’ shape

    …””I think [Atira] was in way over their head when they took on the contract for the housing,” ex-employee Brown said. What bothers many critics is that two years after Abbott got the contracts to manage the BC Housing facilities, she started dating BC Housing CEO Shayne Ramsay. The couple married in 2010.”…

    • “Los Inquietos del Norte – Locos Desde Ayer” [I Got Drunk and Bought A Vancouver Condo]

      • touche … leaky one, no? …

      • Actually, the ReduxDiscoRemix entitled, “I got drunk in Vegas and bought a VancouverCondo sight-unseen from RomanoTheRealtor, AyYiYiYi!” [full translation] is even better, OldChub… but regrettably, GCHQ has pulled all youTube links owing to an indiscretion or two by HRH Prince Harry… who, had he not been preoccupied clutching TheCrownJewels might also have been talked into signing on the DottedLine… Alas….

  4. How quickly things will change when flippers want to book a capital loss.

    • Can’t do it. But you can make an “adjustment to the capital cost allowance” (CCA). This is only on the depreciable property (ie the building, not the land). Even the selling cost that contributes to the loss is allocated to land and building with only the building loss counting. On the plus side, this downward adjustment comes *directly off taxable income*, not a capital loss that cancels out capital gains.

  5. Speaking of tax avoidance a friend of mine who lives in Greece was telling me that the authorities were taxing people with pools, and took to Google Earth to find the blue smudges on malfeasants’ properties. Once that trick was uncovered, people started painting their pools green. How un-Greek.

    • Athens looks like Beirut with apartment buildings that are unfinished, rebar and incomplete brick work jutting out of the top of buildings. The reason is that buildings under construction are exempt from property taxes.

  6. I think he should not be paying any taxes because he had to put up with “irresponsible renters”. Poor guy.

  7. It’s important to point out that governments have an uninterrupted history of serial, catastrophic failure when it comes to handling other people’s money. It seems crazy that anyone in his right mind would advocate giving these people more even money.

    Yet the luminaries to whom we award our most esteemed prizes for intellectual achievement are among those beating this drum the loudest.

    The brainwashing of the public, over the years, has been done to perfection. 99% of you suckers have taken it hook line and sinker.

  8. Ralph you say..Government is nothing more than your fellow citizens telling you what your rights and obligations are here..
    You’re not that lost in space are you? There are OVER 450,000 BYLAWS in BC..They’re supposed to be “good for us”? The Gov’t and “fellow citizens” are 2 different ENTITIES. If the government implemented a law and the PUBLIC voted, you would see a DIFFERENT response. IE; THE HST

    • Yes, but read some Adam Smith, fer chrissakes! [/sarcasm]

      • I think that’s a conflation of points. Bylaw and legislation reform is one thing – bylaws tend to be the slow accumulation of solves to various problems at different times, and there are a lot of ridiculous ones on the books. Indictment of all forms of government investment to the fact that we still have bylaws against hitching a horse to a lamppost is a rather extreme reaction, and I have to wonder what bylaws are truly chafing your hide?
        Similarly, the Securities Commission might sometimes make stupid rulings, or investment banks may come out with nonsensical packages of mortgage backed derivatives, but that doesn’t indict all forms of private investment for all time. The systems are human and flawed.

        You say governments are catastrophic failures, and I agree they have been. Companies too have been catastrophic investment or societal-cost failures. And the catastrophic failure of people to be respectful and careful and cope with their own fear or react well to resource scarcity means that it’d be pretty darn easy to get back to a society of small outwardly warring tribes if we don’t at least attempt to work within other frameworks.

        Welcome to being human. There is no clean solution. Not Magical Utopian Big Government, Not Magical Utopian Free Market Fairy, Not Magical Utopian Everyone-Of-The-Same-Church. Our systems, all of them, reflect who we are. And we’re often greedy, nasty, easily confused, vulnerable to mob thinking, unable to see our knock-on affects, and prone to bias and self-delusion. IN EVERY SYSTEM. Happily, we’re also sometimes better than that.

      • Yes! &InThatSameVein – strictly speaking, DearestAbsinthe… it’s still unlawful to transport Whiskey in a Canoe… in British Columbia [Albertans not being particularly predisposed towards BirchBark MenOfWar]. I might add that I am not aware of any current prosecutions on behalf of HM in this regard.

        Now. On to far more important things… A MusicalTribute to you… and yer Mom… Kudos, Absinthe – pour your favourite poison, grab your SignificantOther… DanceSlow.

        [NoteToEd: Not withstanding a Plethora ‘O PostOccupational Libations in the preceding decade… the EideticMemory still works! Well, TBT, pretty much… sort of, etc… TeeHee!]

      • Yellow Helicopter

        +1 to Absinthe

      • le dénouement…

      • For all the laws and regulations cramping our style, I am often perplexed and fascinated, listening through open windows after dinnertime, at how strange and surreal some of our self-imposed realities can become. It must be, I can only begin to imagine, something else entirely on the other side of those walls.

      • Living in parallel universes.

    • Everybody’s an anarchist until their neighbour’s becomes a crack house or an abattoir opens upwind.

  9. A quick Google search reveals that the top marginal tax rate on capital gains in B.C. in 2007 was 21.8 percent, or 6721 dollars and change in this case. Hardly a disincentive to making a profit, much better than earning an additonal 30 grand.
    How many realtors involved ? – should be a huge glut of condo rentals available soon if this is a common practice.

    • When the CRA sees you doing it seven times in seven years, they may well say it’s your day job and start taxing the profits as regular income. The same thing can happen to stock market players and professional gamblers.

  10. Hopefully “Tom” has an apple iPhone…so I’ll just find out what his UDID is and forward his real name to CRA…sounds like he’s got too many hidden assets…or he’s just another troll with too many 1st world problems… 😛

    • won’t help the pb – though irs can pay you well if worth their while ($104M, i just read yesterday). tom raises legit issue – just keep on bailing isn’t a solution. actually, can’t see there being a popular solution. so this thing will probably just have to run its course – and if so, you can only mitigate the fallout. in fact, if there are overlords, maybe need to concede them that here popular opinion is a guaranteed fail. dumb as a jackass and fairly straightforward to predict (direction not timing) – add. because you can outthink one doesn’t mean you want to wrestle it.

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