The Canada Revenue Agency (CRA) is warning Canadians about getting involved in tax schemes where promoters, including some tax representatives and tax preparers, are claiming that individuals can get a significant tax write-off by investing in real estate through a limited partnership.
The CRA says the scheme is advertised as an investment opportunity in real estate through a limited partnership. “It is usually heavily promoted as a product with a significant tax advantage and limited liability for the investor. The promoter of the scheme promises a tax write-off for more than double of what was invested,” explains the CRA.
Promoters of this scheme tell potential investors they can claim a significant tax write-off because of costs being expensed in the initial year of the project. “For example, the investor has invested $5,500 and is advised that they can write it off on their taxes for $12,500 due to financial services, lease enhancement and tenant improvement costs expensed in the first year. This is not the case,” underlines the CRA.
Limited partnerships are unique arrangements that provide investors with certain benefits similar to partnerships and corporate entities. “However, different than general partnerships, the investor’s liability is restricted to the amount they invested. Therefore, they cannot claim a higher tax write-off than invested,” states the CRA.
To learn more about tax schemes, visit Canada.ca/tax-schemes.