The Vaughan Construction & Real Estate Boom: Navigating Joint Ventures plus GST/HST Rebates

Today, Vaughan City is currently experiencing some of the largest and fastest-paced growth with respect to both its real estate and infrastructure projects in the GTA area. Projects like the large multi-tower community known as Bravo at Assembly Park in the Vaughan Metropolitan Centre (VMC) have completely altered our skyline in this regard. In order to help spur on even more growth, the City of Vaughan recently took the unusual step of reducing all development fees to zero, saving developers upwards of $94,000 per new house built. This “fee holiday” opens up a lot of opportunities for local construction businesses, but also presents complicated tax issues for them. To maximize their profits, these local real estate professionals need to understand two main concepts: JVs and GST/HST Rebates. You can visit the best tax accountant in Vaughan. 

The Joint Venture Traps: Income Classification and Legal Structure

Given that the capital needed is higher, most companies don’t develop alone. The Canadian local developers are opting for partnerships in order to share resources such as finances, land, and operational knowledge. But the CRA tends to look at these partnerships from a legislative perspective.

Joint Venture vs. Partnership

A joint venture does not have a separate identity from a tax point of view, as it merely involves individuals retaining individual ownership rights to their portion of the property. Should there be any errors in your joint venture agreement that lead to the Canada Revenue Agency considering it a partnership, you will lose the freedom to choose your tax elections and change your corporation’s entire tax filing process.

Capital Gains vs. Business Income

Because of the inclusion rates at the federal level of up to 66.67 percent, where the inclusion rates include corporate capital gains and personal capital gains above $250,000, there is no shortage of individuals wanting to classify their gains as capital gains. However, thanks to the CRA’s anti-flipping guidelines, all property sold less than 365 days after acquisition is considered 100 percent business income. When it comes to developers in Vaughan, no matter how long you keep the property, the CRA will examine your primary intent.

Maximizing GST/HST Rebates in a Shifting Landscape

The true battleground for a Vaughan development project will usually be that of commodity tax recovery. Failure to submit timely rebate claims or miscalculations involving ITCs can result in the complete destruction of a project’s bottom line.

Purpose-Built Rental Incentives

In an effort to address the problem of insufficient housing supply, the government of Ontario decided to exempt the entire 8% provincial component of the HST for qualified purpose-built rental housing. Together with Vaughan’s decision to set the development charges at zero dollars, it means that the construction of rental apartment complexes is extremely profitable. Nonetheless, one should consider certain conditions. Furthermore, you can consult the best Tax accountant in Toronto. 

The Operator Election Pitfall

The general rule for a joint venture is that no member of the joint venture is able to separately file a GST/HST return in relation to the joint venture’s common costs. Pursuant to Section 273 of the Excise Tax Act, an election must be made within the joint venture designating a particular “Operator” of the joint venture. It is the responsibility of the Operator to account for the GST/HST in respect of the joint venture.

Act Before the CRA Audits

In essence, maneuvering through this rapidly changing environment requires a pro-active, local strategy. Don’t wait until tax season or the issuance of an audit notice by the Canada Revenue Agency to review your joint venture agreements or rebate applications. Contacting a local tax consultant during your initial planning stages can uncover additional opportunities and prevent costly structural issues. 

Conclusion

With a specialized tax accountant in Vaughan, your real estate business will be guaranteed to be profitable and in full compliance with the CRA’s continually changing lawsUsing proper joint venture structuring techniques and aggressively collecting your full GST/HST rebates will help you protect your cash flow and benefit from the building boom taking place in York Region.

Visit the best tax accountant in Oakville today!