The Risks of Pre-Construction Condo Flips
Qureshi v. The King 2026 TCC 87
Summary
In Qureshi v. The King 2026 TCC 87, the Tax Court of Canada (“Court”) dismissed both an income tax and GST/HST appeal arising from the sale of a pre-construction condominium in North Vancouver. The appellant purchased the condominium in 2015 for approximately $660,000 and sold it in 2018 for approximately $1.16 million, realizing a profit of roughly $456,907. She did not report the gain because she considered the property to be her principal residence. The Minister reassessed on the basis that the condominium had been acquired and sold in the course of an adventure or concern in the nature of trade, making the entire profit taxable as business income. The Minister also assessed GST on the basis that the appellant was a “builder” under the Excise Tax Act and was required to collect and remit GST on the sale. Justice Derksen agreed with the Crown on both issues and dismissed the appeals.
The decision is significant because it provides a detailed analysis of how courts assess intention in pre-construction condominium transactions. The Court closely examined the taxpayer’s financing arrangements, prior real estate transactions, occupancy evidence, communications with lenders and realtors, and overall conduct. The case also demonstrates the substantial overlap between the income tax “adventure or concern in the nature of trade” analysis and the GST/HST “builder” rules.
Background
The appellant entered into an agreement on February 21, 2015 to purchase a pre-construction condominium unit located at 255 West 1st Street in North Vancouver for $659,900. Construction was completed in October 2017, with closing taking place on October 25, 2017.
Within weeks of taking possession, the appellant listed the condominium for sale. The property was first listed on December 6, 2017 and later relisted with another realtor on February 21, 2018. On March 22, 2018, she entered into an agreement to sell the unit for $1,161,000. The transaction closed on June 28, 2018.
After accounting for costs, the appellant realized a profit of approximately $456,907. She treated the property as her principal residence and did not report the gain. The Minister reassessed on the basis that the profit constituted business income from an adventure or concern in the nature of trade.
The Minister also assessed under the Excise Tax Act (“ETA”), concluding that the appellant qualified as a “builder” and was therefore required to collect GST on the sale.
Legal Framework
Justice Derksen reviewed the well-established principles governing whether a real estate transaction is on income account or capital account. The Court confirmed that the principal residence exemption is only available where the property constitutes capital property. If the property was acquired and sold in the course of a business venture or an adventure in the nature of trade, the exemption does not apply.
The Court relied on the traditional Happy Valley Farms factors, namely the nature of the property, the length of ownership, the frequency of similar transactions, work expended on the property, the circumstances responsible for the sale, and most importantly, the taxpayer’s motive and intention. Justice Derksen emphasized that intention must be determined primarily through objective evidence rather than after the fact explanations. Courts examine the taxpayer’s conduct, financing, surrounding circumstances, and objective manifestations of purpose.
For GST/HST purposes, the Court reviewed the broad statutory definition of “builder” under section 123(1) of the ETA. An individual can qualify as a builder where they acquire a condominium unit before construction is complete or before it has been occupied, if the primary purpose is resale.
Analysis
The Court treated the nature of the property as neutral because a condominium unit may either be a long-term capital asset or a speculative asset depending on the surrounding facts. The short ownership period strongly favoured the Minister. Although the purchase agreement had been signed in 2015, the Court focused on the fact that the property was listed for sale almost immediately after possession was taken in late 2017. The appellant’s prior real estate activity proved to be damaging. The evidence showed that the appellant and her former husband had engaged in numerous significant real estate transactions involving luxury homes, trusts, and condominiums in Vancouver. Some of those transactions had already been acknowledged as business ventures.
The Court placed considerable weight on a prior letter the appellant had written to the CRA regarding another real estate venture. In that letter, she described herself as pursuing property refurbishment projects to generate income and acknowledged having experience in real estate investments. Justice Derksen concluded that this prior correspondence demonstrated sophistication, awareness of market opportunities, and a willingness to engage in speculative transactions. The appellant argued that she genuinely intended to live in the condominium and later decided to sell because she became unhappy with the building and environment. The Court ultimately rejected this explanation.
One of the key problems for the appellant was that she purchased another residence while the condo was still under construction. In December 2015, after already committing to the condominium purchase, she purchased a large four-bedroom home in West Vancouver for $2.2 million. Justice Derksen found that this was inconsistent with the claim that the condominium was intended to become her long-term residence. The Court also noted that the financing arrangements for the larger home involved a five-year fixed mortgage, which further undermined the suggestion that the condominium was intended as her primary residence.
The financing evidence relating to the condominium itself was also highly problematic. When the condominium purchase closed in 2017, the appellant lacked sufficient income to qualify for conventional financing. Instead, she obtained a short-term unsecured loan from her former husband. Most significantly, the former husband sent an email to his banker describing the condominium as the appellant’s “investment property.” Although both witnesses attempted to minimize the significance of that wording, the Court found their explanations unconvincing and concluded that the communications strongly suggested that the condominium was intended for resale.
Occupancy and Credibility
The most important aspect of the decision in our view involved occupancy and credibility. The appellant testified that she moved into the condominium with her daughters in late November 2017 and lived there until the sale closed in 2018. Justice Derksen rejected that evidence. The Court carefully reviewed the timeline and found the appellant’s evidence inconsistent with the surrounding facts. The condominium was listed for sale on December 6, 2017, only weeks after possession.
The Court found it implausible that someone who genuinely intended to occupy a property as a residence would list it for sale almost immediately after allegedly moving in. The Court also noted that the appellant continued maintaining and residing primarily at the larger West Vancouver property. Her daughters had separate bedrooms there, whereas the condominium allegedly involved them sharing a smaller bedroom arrangement. Justice Derksen found this improbable.
Additional details further undermined the occupancy claim. The appellant never installed WiFi at the condominium, continued paying for internet services at the larger home, did not change her driver’s licence address, and did not update her address with CRA. The condominium was also marketed as “brand new” and “never lived in,” which the Court viewed as significant because those descriptions enhanced marketability. Photographs showing furniture inside the condominium did not help the appellant. Justice Derksen concluded that the furniture appeared more consistent with staging than genuine residential occupancy.
Ultimately, the Court concluded that the appellant failed to establish, on a balance of probabilities, that she genuinely occupied the condominium as a place of residence.
Speculative Intent
Justice Derksen ultimately concluded that the appellant acquired the condominium with speculative intent and with resale as an operating motivation. The Court referred to the broader Vancouver real estate market during the relevant period, including rapidly appreciating prices, low interest rates, and legislative responses such as British Columbia’s foreign buyers’ tax and vacancy tax measures. The Court found that the appellant and her former husband were sophisticated participants in the Vancouver real estate market and fully aware of the speculative opportunities available during that period. Justice Derksen concluded that the surrounding circumstances supported the inference that the condominium had been acquired with resale in mind and that the profit was therefore taxable as business income.
GST/HST Builder Analysis
Having concluded that the transaction constituted an adventure or concern in the nature of trade, the Court also found that the appellant qualified as a “builder” under the ETA. The appellant attempted to rely on the self supply provisions in section 191 of the ETA by arguing that the condominium had been used primarily as her place of residence.
That argument failed for the same reasons as the principal residence argument. The Court found that there was insufficient credible evidence of genuine occupancy or primary residential use. Justice Derksen therefore concluded that the appellant was required to collect and remit GST on the sale of the condominium.
Key Takeaways
Qureshi is a reminder that courts will look beyond a taxpayer’s stated intention when assessing pre-construction condominium transactions. Objective evidence is critical. Financing structures, resale timing, prior real estate activity, occupancy details, communications with lenders and realtors, and even routine lifestyle evidence are all important.
The case also illustrates how a principal residence argument can fail where the surrounding facts suggest speculation. Immediate resale activity, inability to secure long term financing, ownership of another substantial residence, and weak occupancy evidence proved fatal to the appellant’s position.
Perhaps most importantly, the case demonstrates the significant overlap between income tax and GST/HST exposure in condominium flip cases. Once the Court concluded that the transaction constituted an adventure or concern in the nature of trade, the GST/HST builder analysis largely followed. The result was not only full taxation of the profit as business income, but also GST liability on the resale itself.
