Who has to comply?

Under the new regulations, ‘real estate developers’ must meet the Act’s requirements, effective February 20, 2009. Don’t be misled by the words used - sales of bare land and lots without buildings are not covered under the legislation. What FINTRAC really means are builders who handle their own sales in-house.

This essentially puts those builders on an equal footing with other people who sell new or existing properties through an independent outside provincially licensed real estate agent or broker.

These five questions help you determine whether you come under the Act.

• How many new homes or buildings do you sell? (Rule of thumb for home builders: five or more units and you qualify.) More
• Do ‘you’ sell them? (If outside licensed real estate sales agents or brokers sell them, you don’t meet the definition and they take on the responsibilities.)  More
• Are custom builders ’selling a house’? (Short answer from FINTRAC: Not if they are hired to build on the customer’s own lot.)  More
• Do sales of modular and manufactured homes fall under FINTRAC? (Yes, according to FINTRAC, because this involves the sale of a house, even if is delivered to the client's lot)  More
• What is ‘new’? (Basically ‘less than two years after completion’.)  More
• What is a sale ‘to the public’? (Pretty much everything except sales to government and sales between affilates, or a wholly-owned subsidiary and its owner.)  More

NB: Once you meet the definition of a ‘real estate developer’, you must meet the FINTRAC requirements from that time on.

Scenarios

CHBA has worked with FINTRAC to identify whether or not the builders would have FINTRAC obligations in a number of different sales scenarios. Click here for more information.

How many new homes do you sell to the public?

You qualify as a ‘real estate developer’ and must comply with this legislation if:

• you sell new residential properties to the public, and
• in calendar 2008 (or if you did not qualify in 2008, as soon as you reach this threshold in any later calendar year) you sold:
  • five or more new houses or condominium units, or
  • at least one new multi-unit residential building containing five or more units, or
  • at least two new multi-unit residential buildings which add up to five or more units (e.g., one duplex and one triplex)

OR

• you sell new commercial and industrial properties to the public, and
• in calendar 2008 (or as soon as you reach this threshold in any later calendar year) you sold:
  • one new commercial building (or more), or
  • one new industrial building (or more)

Do 'you' sell them?

Builders only have to keep information and make reports under the Act for residential units they sell to the public themselves, through inside sales staff or through an outside new home sales company with non-licensed agents (paragraph 39.5(1)(a) of the Regulations).

If the sale is conducted by an outside independent licensed real estate agent or broker retained by the builder, FINTRAC says the builder is not deemed to have made the sale, and thus is not subject to any obligations in respect of that sale. (The sales still get recorded though, because licensed real estate agents and brokers have their own responsibility to keep records on sales and report special cases to FINTRAC.)

The only exception to this is when a licensed real estate sales representative is hired as an employee by the builder, rather than acting through its own firm or through a brokerage as an agent. In this case, the builder/employer is subject to the obligations.

If the builder handles some sales itself and others through outside licensed real estate agents/brokers, the number of its own sales will be used to determine whether it has responsibilities under the legislation. If so, it will be responsible for record keeping and making reports for those inside sales only.

NB: It is strongly recommended that builders make sure the outside licensed real estate agent/brokers’ responsibility for FINTRAC compliance for any sales it makes of your homes is clearly stated in your agency agreement or service contract. All such agreements should also state that the agent/broker will hold your firm harmless in any actions taken by FINTRAC as a result of sales it makes of your homes.

NB: If a builder with sales volume of more than five units stops using outside licensed real estate agents/broker and brings the sales in-house, it will take on the FINTRAC responsibilities as well.

Are custom builders 'selling a house'?

According to FINTRAC, a builder that builds a home on land already owned by the client, as per the client’s specifications, would not be a real estate developer, given that at no point do they actually sell a home.

In this case, the builder would be viewed like any other contractor who enters into an agreement with a land owner to provide that land owner with building (or plumbing or roofing or renovation) services: they are not ‘real estate developers’ as defined in the regulations, because they do not sell new homes to the public.

NB: If the builder was involved in the sale of the lot to the customer, that will probably bring the unit under the FINTRAC requirements.   

Modular Homes

While sales of factory-built, modular and manufactured homes may not include the sale of land, these transactions do involve the sale of a new home. As such, FINTRAC considers that modular and manufactured home sales do fall under the regulations and Act. The nature of the sales transaction determines who has the record-keeping and reporting obligation - either the manufacturer for direct-to-client sales, or the retailer/builder if they sign the sales contract with the client. Additional information on this topic can be found in the Examples section.

What is 'new'?

Guidelines prepared by FINTRAC state that in the context of ‘real estate developers’, a new house or other building is one that was constructed within the past two years and was not occupied for its intended purpose before being sold. For example, a home occupied by the developer as a sales office would still qualify as a new home as long as it is sold within two years of being built.

Substantial renovations will also be considered 'new', so anyone who guts, renovates and resells a home is creating a unit that could come under the legislation. Similarly, condominium units created by substantially renovating or converting an existing building would be considered 'new'.

Manufactured and modular homes (which are very close to complete when shipped) are considered 'new', but FINTRAC has said panelized homes which require more site assembly, and pre-engineered homes which are essentially packages of precut and numbered building components, are not.

What is a sale 'to the public'?

Guidelines prepared by FINTRAC state that sales ‘to the public’ include those to an individual, a corporation or any other type of entity (e.g. a partnership, cooperative, associates, etc.) Sales between affiliates and those between a wholly-owned subsidiary and its owner are excluded.