Starting in 2023, a new rule from Budget 2022 affects how profits from flipping residential real estate are taxed. Here’s a breakdown of what you need to know:
What is Property Flipping?
Property flipping involves buying residential property and quickly reselling it for a profit. This includes selling the rights to purchase a property before its official sale.
Reporting Profits from Property Flipping
Profits from property flipping are fully taxable as business income. They do not qualify for the 50% capital gains inclusion rate or the Principal Residence Exemption.
What is Flipped Property?
A “flipped property” is a housing unit in Canada owned for less than 365 days before sale, unless sold due to certain life events such as:
- Death of the taxpayer or a related person
- Birth, adoption, or care of an elderly parent
- Marriage or common-law partnership breakdown
- Threat to personal safety
- Serious disability or illness
- Involuntary job termination
- Eligible relocation
- Insolvency
- Destruction or expropriation of the property
For rights to acquire a property, the 12-month holding period starts once ownership is secured.
Key Changes
From January 1, 2023, profits from flipped properties are treated as business income, not capital gains. The Principal Residence Exemption does not apply. The rule also covers profits from assignment sales if the rights are sold within the 12-month period.
Losses from Flipped Property
Any losses from selling a flipped property are deemed to be nil.
Effective Date
The new rule applies to transactions from January 1, 2023, onward.
Exceptions
If a property is owned for more than 365 days or sold due to life events, it may not be considered flipped property. In such cases, it’s determined case-by-case whether the profits are business income or capital gains.
More Information
For detailed information, refer to the Capital Gains Guide, and the pages “Report your real estate income” and “Tax effects of buying real estate to sell for a profit” on Canada.ca. Stay updated with new forms, policies, and guidelines online.
For personalized advice and to understand how these changes may impact you, consult with VF Accounting.