Tax write-off of double your real estate investment? No, says CRA

Agency is warning investors of the serious consequences of falling for real estate tax schemes

Tax write-off of double your real estate investment? No, says CRA
Steve Randall

Investors are being tempted into real estate investments that appear too good to be true – because they are!

The Canada Revenue Agency says that its increased audits are identifying and shutting down tax schemes including those that promise write-offs of more than double the investment in real estate.

In a warning issued Monday, the CRA said that promoters of these tax schemes – including some tax representatives and tax preparers – are claiming that investments in real estate can produce significant write-offs due to expenses incurred in the first year.

The agency says that the only thing that could be significant is the cost of investing in these schemes.

The CRA gives an example of an investor investing $5,500 in a real estate tax scheme with the promise of a write-off of $12,500 due to financial services, lease enhancement and tenant improvement costs.

The scheme is promoted as having limited liability as it is operated through a limited partnership.

Although limited partnerships do offer some tax benefits like those of partnerships and corporate entities, the CRA says that the write-offs can never be more than the amount invested.

The agency warns that the cost of participating or promoting these tax schemes can be high with penalties, fines, even jail time.

It advises that investors seek professional advice before investing, especially where deals appear too good to be true.