The Canadian real estate market has always been a hotbed of activity, with residential property flipping emerging as a popular investment strategy. The Residential Property Flipping Rule in Canada is a tax regulation aimed at curbing speculative behavior in the real estate market. This rule, introduced in the 2022 federal budget, targets individuals who buy and sell residential properties frequently to make a profit. The rule applies to properties sold after January 1, 2023.
Flipping Definition by CRA
A flipped property is generally one that is purchased with the intention of quickly reselling it for a profit. The CRA looks at various factors to determine intent, such as the holding period, frequency of transactions, and the investor's business activities. If a residential property is bought and sold within 12 months period, the flipping rule applies but with some exceptions mentioned below.
Exceptions to the property flipping rules
If a residential property disposition can reasonably be considered to occur due to one of the following life events, the property flipping rules will not apply:
Death of the taxpayer or a person related to the taxpayer.
A new addition to the taxpayer’s household, eg. birth or adoption of a child.
Breakdown of a marriage or common-law partnership of the taxpayer, where the taxpayer has been living separate and apart from their spouse or common-law partner for at least 90 days prior to the disposition.
The taxpayer or a related person is suffering from a serious illness.
Involuntary termination of the employment of the taxpayer or the taxpayer’s spouse or common-law partner.
Eligible relocation of the taxpayer or the taxpayer’s spouse or common-law partner, eg. a relocation that enables the taxpayer to carry on business, be employed or attend full-time post-secondary education.
Insolvency of the taxpayer.
Destruction or expropriation of the property, eg. the property is destroyed due to a natural disaster.
Tax Implications
Profits from property flipping are 100% taxable as business income. They do not qualify for the lower capital gains inclusion rate (66.67% after June 24, 2024), and the principal residence exemption is not allowed.
Professional Advice
Seeking professional advice is highly recommended. Real estate agents, tax advisors, and financial planners can provide valuable insights and help you navigate the complexities of property flipping in Canada.
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