Residential Property Flipping Rules

Written by

staterafp

Published on

February 15, 2024

Prior to 2023, residential property that was not considered a principal residence, and sold for a profit were taxed as capital gains to the individual owner(s). Capital gains means only 50% of the profit margin from the sale of said property was taxable to the owner. Homes that were deemed principal residences had no taxation considerations.

However, the government felt the exemption and structure of capital gains legislation was being taken advantage of by people who have no intention of holding on to a property as their principal residence, but rather with a sole focus to flip the property for a profit. Property flipping involves purchasing real estate with the intention of reselling the property in a short period of time to realize a profit, whether from market increases, renovations or otherwise.

To combat this concern, the Canadian government created new legislative rules to address this common practice. As of January 1, 2023, renovators and property flippers are now having to consider adjustments to how they conduct their personal business dealings in this area.

The newly legislated Anti-Flipping Tax Rule means profits made off properties that are sold within 365 days of owning them will be taxed as business income. Business income means 100% of the profits earned are fully taxable. Alternatively, any losses resulting from the sale of a flipped property is deemed to be nil.

Exemptions would apply if the sale occurred for certain reasons, as listed below:

Death: a disposition due to, or in anticipation of, the death of the taxpayer or a related person.
Household addition: a disposition due to, or in anticipation of, a related person joining the taxpayer’s household or the taxpayer joining a related person’s household (e.g., birth of a child, adoption, care of an elderly parent).
Separation: a disposition due to the breakdown of a marriage or common-law partnership, where the taxpayer has been living separate and apart from their spouse or common-law partner because of a breakdown in the relationship for a period of at least 90 days.
Personal safety: a disposition due to a threat to the personal safety of the taxpayer or a related person, such as the threat of domestic violence.
Disability or illness: a disposition due to a taxpayer or a related person suffering from a serious disability or illness.
Employment change: a disposition for the taxpayer or their spouse or common-law partner to work at a new location or due to an involuntary termination of employment. In the case of work at a new location, the taxpayer’s new home must be at least 40 kilometres closer to the new work location.
Insolvency: a disposition due to insolvency or to avoid insolvency (i.e., due to an accumulation of debts).
Involuntary disposition: a disposition against someone’s will, for example, due to, expropriation or the destruction or condemnation of the taxpayer’s residence due to a natural or man-made disaster.

Know the rules before you enter into any plans or personal dealings in this area, and talk to Statera Financial Planners if you need help understanding the legislation, planning or savings for a property purchase, or need connections to other professionals in this realm.