The Canada Revenue Agency has warned Canadians about getting duped into participating in fraudulent real estate investment schemes.
Among the most insidious strategies are tax arrangements where perpetrators swindle people out of their money by claiming that the latter can get significant tax write-offs. The fraudster promises these results by using enticing limited-partnership real estate investments as bait.
“It is usually heavily promoted as a product with a significant tax advantage and limited liability for the investor. The promoter of the scheme promises a tax write-off for more than double of what was invested,” the CRA said.
The results will definitely not live up to the initial promises, however.
“Limited partnerships are unique arrangements that provide investors with certain benefits similar to partnerships and corporate entities,” the CRA explained. “However, different than general partnerships, the investor’s liability is restricted to the amount they invested. Therefore, they cannot claim a higher tax write-off than invested.”
The prevalence of real estate investment – along with intensified purchasing and speculation activity by foreigners – remains to blame for “pronounced imbalances” in B.C. and Ontario, the Bank of Canada stated in its mid-May Financial System Review.
This is despite overall housing imbalances having diminished, with nationwide resale activity shrinking by around 20% from the peak seen in 2016.
“House price growth has also slowed markedly. For the first time since 2013, it is running below income growth,” the central bank’s analysis noted, but quickly added that “[investors] remain an important vulnerability.
“Froth from rising expectations of house price growth has declined in housing markets in the Toronto and Vancouver areas over the past two years. While the Toronto market appears to be stabilizing, prices and resale activity continue to decline in Vancouver.”