Canada’s New Anti-Flipping Tax

Canadians who sell a home or rental residential property owned for less than 12 months will be considered flipping, and 100% of profits from the sale will be taxed as business income.

New “anti-flipping” rules will come into effect on Jan. 1, 2023.

The New Anti-Flipping Law

Under the proposed new rules, in case of a disposition of a “flipped property,” any gain realized is taxable as business income and not as a capital gain. A flipped property is defined as a housing unit in Canada that was owned for less than 365 consecutive days before its disposition. Accordingly, the principal residence exemption (PRE) will not be available, and the entire gain is taxable as 100% business income. PRE results in no tax being paid on the profit from the sale of a principal residence.

There will be some exceptions available from the application of the new law for certain life events such as death, a threat to personal safety, breakdown of a relationship, serious illness or disability, relocation for work or termination, insolvency/bankruptcy, and births of children.

Rental properties: Currently, a taxpayer can purchase a property for rental purposes, reporting the rental income, which is taxable. The rental income can be offset by deductions for expenditures, such as mortgage interest, maintenance, property taxes, utilities, insurance, and management fees. Under current law, generally, if this non-principal residence is sold, any profits are taxed as capital gains, resulting in only 50% of the gain being taxed while the other 50% is received tax-free. 

But this is also changing under new anti-flipping laws. If the rental property is sold in less than 12 months, any profit will be treated as a business income and will be 100% taxed. 

Non-Capital Loss

This rule only applies to gains; individuals cannot report a business loss on a property just because it meets the definition of a flipped property. 

The new rules effectively set out a bright line test for a gain being ineligible for the PRE and 100% of the gain included in income, without the taxpayer’s intention being relevant. 

Moreover, a taxpayer who holds the property longer than 12 months – to avoid the application of the “flipped property” definition, could still be subject to the CRA’s audit and scrutiny under the existing rules which disallow the capital gain and PRE if the intention was to flip the house. Finally, under the current rules, the burden is on the CRA to prove that a taxpayer’s intention was to flip a property. Not anymore. The new law says if you sell the property within a year, it is a flipped property, and you pay 100% tax on the profit. 

If you are a real estate investor, manager, or owner, Source Accounting Team can assist you with personal tax preparation, tax planning, and determining how tax provisions are applicable in your situation. Please get in touch with us at info@sourceaccounting.ca or call 647-930-8130 for further details..

Source Accounting Professional Corporation (CPA) is a full-service accounting firm in Mississauga, helping commercial real estate agent, real estate broker, real estate developer, property manager, real estate agent, mortgage broker, mortgage agent by providing tax preparation, corporate tax filing, accounting, bookkeeping services, payroll solutions, etc. If you are looking for an accountant Mississauga (Brampton, Toronto, GTA) or an accountancy firm Brampton, you are in the right place.

Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.