Warning: Watch out for real estate investment schemes
By: Pouya Ghomi
In a warning to general public, Canada Revenue Agency (CRA) warned Canadians about getting involved with real estate investment tax schemes. The promoters usually claim that individuals who invest in real estate through a limited partnership can get significant tax write-offs.
What are tax schemes?
Tax schemes are arrangements that promise tax payers they can reduce the amount of their tax owing by use of large deductions or promise them tax free income. They sometimes include creative ways to convince people they could pay less taxes.
How the scheme works:
These schemes are advertised as an investment opportunity in real estate through the use of “limited partnership”. Its usually promoted as a product that has significant tax deduction advantage up to double the amount of what was invested and only a limited liability for the investor.
For example you’ll be advised that you can get a huge tax write-off due to costs being expensed in the first year of the project. For instance, an investor who has invested $5,500 is advised they can get a tax write-off for $12,500 due to financial services, lease enhancement and tenant improvement costs expensed in the first year, which is not the case.
To give you some perspective, limited partnerships are different from general partnerships in a sense that the investor’s liability is limited to their investment amount. Therefore, they can not claim a higher tax write-off than invested.
What does it mean for you as an investor?
- As an investor always get independent, professional advice before you invest, specially if the deal seems too good.
- If you think you might be a victim of such schemes, you can use CRA’s Voluntary Disclosure Program before CRA comes for you.
- Report any suspicious schemes to CRA to help ensure tax fairness for all Canadians.
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Contact PouyaSource: Canada.ca/en/revenue-agency/news