PERSONAL TAX TRAINING

Residential Property Flipping Rule

The Residential Property Flipping Rule was introduced in the 2022 Federal Budget to ensure profits from flipping residential properties are fully taxable as business income. This rule applies to properties sold after January 1, 2023, and is intended to close tax loopholes and address housing affordability concerns in Canada.

What is the Residential Property Flipping Rule?

The rule targets individuals who buy and sell residential properties within a short period (typically less than 12 months) to earn a profit. Under this rule:

• Profits from flipping residential properties are deemed as business income and are fully taxable.
• The principal residence exemption cannot be claimed for flipped properties.
• The rule applies even if the property was held for personal use before the sale.

Exceptions to the Rule

The rule does not apply if the disposition of the property was due to exceptional circumstances, such as:

• Death of the property owner or a related person.
• Serious illness or disability affecting the property owner or a related person.
• Relocation related to employment (a minimum of 40 kilometers closer to the new work location).
• Divorce, separation, or the dissolution of a common-law partnership.
• Insolvency or bankruptcy of the property owner.
• Natural disasters or other unforeseen events that render the property uninhabitable.

Key Points to Remember

• The rule applies to both new construction and resale residential properties.
• The full gain from the sale of a flipped property is included in taxable income.
• Taxpayers must declare the income on their tax returns and cannot offset gains with the principal residence exemption.
• Failure to comply may result in penalties, interest, or reassessment by the CRA.

Filing and Reporting

When filing your tax return, ensure all property dispositions are accurately reported. Include supporting documentation if the disposition falls under one of the exceptions. Consult a tax professional or the Canada Revenue Agency (CRA) for more details.

For additional information, refer to the CRA's guide on property flipping or consult Chapter 4 of the CRA's Personal Tax Return Guide for more details on capital gains, losses, and business income classification.