Canada’s Updated Anti-Flipping Tax Regulations

Starting from January 1, 2023, Canada will implement new regulations targeting property flipping. Here’s a concise overview of the changes: 

• Definition of Flipping: If a home or rental residential property is sold within 12 months of ownership, it will be deemed as flipping. Profits from such sales will be fully taxed as business income. 

• Taxation Details: 
• Previously, gains from the sale of “flipped properties” (properties owned for less than 365 days) were taxed as capital gains, meaning only 50% of the profit was taxable. 
• With the new rules, the entire gain from a flipped property sale will be taxed as business income, making it 100% taxable. 
• The principal residence exemption (PRE), which previously allowed homeowners to avoid taxes on profits from the sale of their primary residence, will not apply to flipped properties. 

• Exceptions: There are specific life events that may exempt individuals from this rule, including death, threats to personal safety, relationship breakdowns, severe illness or disability, job relocation or termination, insolvency/bankruptcy, and childbirth. 

• Rental Properties: 
• Under the current system, profits from the sale of non-principal residences (like rental properties) are taxed as capital gains, with only half of the gain being taxable. 
• However, with the introduction of the anti-flipping laws, if a rental property is sold within a year, the entire profit will be considered business income and will be fully taxed. 

• Non-Capital Loss: The new regulations only pertain to gains. This means individuals cannot claim a business loss on a property solely because it’s classified as a flipped property. 

• Clarifications: 
• If a property is held for more than 12 months to bypass the “flipped property” definition, it might still be subjected to the Canada Revenue Agency’s (CRA) examination based on existing rules. 
• Previously, the onus was on the CRA to demonstrate that a taxpayer intended to flip a property. With the new regulations, if a property is sold within a year, it’s automatically deemed a flipped property, leading to a 100% tax on the profit.