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w w w . C A N A D I A N L a w y e r m a g . c o m A U G U S T 2 0 1 7 21 R E A L E S TAT E tions for those investing in the real estate market in the past 10 years or so. One is those who buy with the sole purpose of flipping. And there are "slightly more sophisticated, slightly higher net worth individuals" who buy a home, live in it for a short period and then sell it. "In each instance, they want to claim the principal residence exemption on those sales. Many of those are effectively flipped with them spending just a few months in there to make it not look like a flip," he says. "Correctly so, the CRA has become vigilant and aggressive on this issue." Previously, it was difficult for the CRA to find the short-term occupiers who claimed the principal residence exemption. But now that everyone is compelled to report on the disposition of the principal residence, the CRA can more easily track sales and flag a rapid succession of home sales to see if they're all claimed as principal residences. The new system offers low-hanging fruit for the CRA to pick for auditing, says Choudhury. While the definition of principal resi- dence in the Income Tax Act doesn't lay out a specific period of time in which the home must be occupied, it does outline that the intention of the owner must be that it serves as their permanent home. Choudhury believes the reasoning behind the new reporting requirement is in part to cool the housing markets in Toron- to and Vancouver in particular as well as allowing the CRA to crack down on the use of tax exemptions. Another attempt to cool down those two markets is the introduction of a foreign buyers tax, introduced in B.C. last summer followed by Ontario earlier this year. Choudury points out, however, that some builders have got ahead of the new wrinkle by offering to pay the foreign buy- ers tax, taking out advertisements in Hong Kong to promote the initiative. And while Fortis quotes the old phrase that you buy land because they're not mak- ing any more of it, meaning it will always hold value, he points out that people don't usually purchase property on their own because they require financing, so there is always some kind of a risk. "The bank is your involuntary partner; unless you're in a cash position, you have no choice." The heated residential market • Home sales in Canada jumped 6.5 per cent last year, although the Canadian Real Estate Association reported a six- per-cent month-over-month sales drop in May largely focused in the Toronto area and believed attributed to a series of new initiatives including a foreign buyers tax, introduced the previous month; • Two-thirds of credit outstanding to household is for residential mortgages and mortgage finance companies have gained significant market share in resi- dential mortgage underwriting since the early 2000s, according to the Bank of Canada; • About 40 per cent of the country's growth has been related to housing since 2014, although it represents only between eight and 10 per cent of overall output. By the numbers Visit gpllm.law.utoronto.ca Questions? gpllm@utoronto.ca Apply today. ONE YEAR | PART-TIME | FOR LAWYERS AND BUSINESS LEADERS Master the Law. Canada's leading law school offers a graduate degree in four unique streams: Business Law Canadian Law in a Global Context Innovation, Law and Technology Law of Leadership ntitled-6 1 2017-07-12 1:19 PM

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