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The Charter of the French language and its regulations govern the consultation of English-language content.

Flipping Your Property (Home or Residential Complex)

As of January 1, 2023, a property (including rental property or a purchase option) located in Canada is considered flipped property if it was owned for less than 365 consecutive days, unless the sale is due to a life event.

Exclusions

The rule on flipping does not apply if a property is sold due to one of the following life events:

  • The death of the owner or a person related to the owner.
  • A related person joining the owner's household or the owner joining a related person's household (e.g. birth of a child, adoption, care of an elderly parent).
  • The breakdown of the owner's marriage or de facto union, if the owner has been living separate and apart from their spouse for at least 90 days prior to the property's sale.
  • A threat to the personal safety of the owner or a related person (e.g. the threat of domestic violence).
  • The owner or a related person is suffering from a serious disability or illness.
  • A relocation of the owner or the owner's spouse, if the new residence is at least 40 km closer to the new work location.
  • An involuntary termination of the owner or the owner's spouse.
  • The insolvency of the owner (e.g. they are unable to pay their debts).
  • The destruction or expropriation of the property (e.g. the property is destroyed due to a natural disaster).

Tax effects of flipped property

A person who flips property is deemed to carry on a business. The flipped property is considered inventory of the business and profits from the sale of the property are deemed to be business income.

As a result, the owner cannot claim the principal residence exemption or the 50% capital gains inclusion rate, as they can be claimed only for residential property held as capital property.

As soon as a residential property is considered inventory, the owner no longer enjoys the tax benefits related to capital property. However, they enjoy the benefits related to business income.

In calculating their business income, owners of inventory can deduct certain expenses not otherwise deductible for capital gains purposes. The deductions for inventory could create a business loss. Any losses resulting from the sale of a flipped property are deemed to be nil.

For more information, see guide IN-155-V, Business and Professional Income.

Note

Even if a property is held for more than 365 consecutive days, profits on the sale of the property may still be fully taxable. Determining whether profit is business income or a capital gain depends on various factors, including whether the owner intends to keep or resell the property.

End of note

Examples of property flipping

Example 1: Purchase and sale of a cottage

In early 2023, Jack buys a lakeside cottage below fair market value. In summer 2023, he gets an excellent offer and decides to sell the cottage for a large profit.

Since Jack owned the cottage for less than 365 consecutive days, sold it at a profit and the sale was not due to a life event, he is deemed to carry on a business and the cottage is considered inventory of the business. As a result, the profit is deemed to be business income and is fully taxable.

However, if Jack had sold the cottage at a loss, the loss would have been deemed to be nil.

Example 2: Purchase and sale of rental property

Linda purchases a six-unit apartment building on November 1, 2022. On June 30, 2023, a real estate developer who wants to buy the building makes her an excellent offer.

Since Linda owned the building for less than 365 consecutive days, sold it at a profit and the sale was not due to a life event, she is deemed to carry on a business and the apartment building is considered inventory of the business. Linda therefore has to report the profit as fully taxable business income in addition to reporting her rental income.

However, if Linda had sold the building at a loss, the loss would have been deemed to be nil. In this case, Linda would only have to report her rental income.

Example 3: Purchase and post-death sale of a condo

In spring 2023, John and Mary purchase a condo downtown. John dies and, at the end of summer, Mary sells the condo for a considerable profit.

Even though Mary owned the condo for less than 365 consecutive days and made a profit on the sale, she is not deemed to carry on a business. The rules on flipping property do not apply because John died. The condo is therefore not considered business inventory.

Mary has to report a capital gain taxed at a rate of 50%. However, if she meets all of the requirements, she can claim the principal residence exemption and avoid paying tax on the taxable capital gain.

Note End of note

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