A developer's books: land as inventory, capitalized interest, and money held in trust

Land is inventory, not a fixed asset

A parcel bought to develop and sell belongs on the balance sheet as inventory, carried at cost. It is not depreciated like a building held for investment. Every addition to that cost — the purchase price, legal fees, survey and engineering work, rezoning costs, development charges — layers onto the parcel's carrying value. It does not hit the income statement as it is paid. We open a cost centre per parcel or phase from the day it is acquired. Reconstructing eighteen months of scattered invoices at year-end is where developer bookkeeping usually goes wrong.

The intention at acquisition decides the bucket, and it should be documented the day the deal closes. Land bought to develop and sell is inventory, generating business income on disposition; land held long-term as an investment is capital property, generating a capital gain instead. Reclassifying a parcel from one bucket to the other later, after the numbers look better one way, is exactly the kind of change CRA scrutinizes. Where a developer assembles land years ahead of a rezoning application, the carrying period itself does not change the classification. Intention at purchase still governs. So we record that intention in the file when the parcel is bought, not when it is finally shovel-ready.

Soft costs during construction sit on the project, not the P&L

Under subsection 18(3.1), construction financing interest must be capitalized to the project rather than expensed as incurred. The same goes for property taxes and other carrying costs related to building or land ownership. That generally holds until construction reaches substantial completion. We build a soft-cost schedule that tracks interest by draw and adds it to the project's job cost. That way, the balance sheet reflects the real carrying cost of the land and the building as it rises. Year-end does not require rebuilding a year of interest invoices from bank statements. Once a phase reaches substantial completion, capitalized interest stops accumulating on that phase. It either flows into the cost of sale as units close, or begins depreciating through capital cost allowance if the building is held for rental. That switch has to be made phase by phase, not for the company as a whole, on a multi-phase site.

One project, several sets of books: joint ventures and bare trustees

Many developments run as a joint venture among two or more corporate participants. A bare trustee corporation holds registered title on their behalf. For tax purposes, the JV itself does not file a return. Income and expense flow through to each participant according to their stated interest. The trustee's own books stay essentially empty of the project's activity, since it holds legal title only, not beneficial ownership. Where the participants make the GST/HST co-venturer election under section 273, one operator handles input tax credits and remittances for the group. That simplifies filing, but it raises the bar on how carefully that operator's ledger has to reconcile to each partner's share. A reconciliation error now affects every participant's return, rather than just one company's. How input tax credits work is worth reviewing before that election is made.

Deposits belong in trust, not in the operating account

Purchaser deposits on pre-construction condo units generally must be held in trust, or covered by approved security. That's required under the Condominium Act, until closing. The books need to treat that cash as a liability from the day it arrives. It is released to revenue only when the sale actually closes, and matched against that unit's cost of sale. Assignment sales — a purchaser reselling their agreement of purchase and sale before closing — add another layer. The assignor's original deposit and the assignment profit are tracked separately, rather than blended into one number. Where a project carries USD-denominated construction financing or a US participant's capital contribution, recording USD transactions in Canadian books sets out the exchange-rate routine. We apply it on every draw and every distribution.

Source: CRA — Interest and property taxes on land.