The Federal government’s new anti-flipping tax rules were passed into law on December 15, 2022 when Bill C-32 received Royal Assent and was legislated as the Fall Economic Statement Implementation Act, 2022. These rules have essentially increased the cost of house flipping in Canada.
Under the Act, a “flipped property” means “a housing unit of a taxpayer […] located in Canada that was owned by the taxpayer for less than 365 consecutive days prior to the disposition of the property…”.
Effective January 1, 2023, if the flipped property is held for less than one (1) year, the new anti-flipping tax rules deem any profits from the flipped property as business income and not as a disposition of capital property. This results in taxpayers not being eligible to claim the principal residence exemption or capital gains tax treatment on any gains from the disposition of the flipped property. The taxpayer is, therefore, obligated to pay taxes on any gains as business income, and any losses are deemed to be nil. The taxpayer could also potentially be charged GST/HST on the disposition depending on the actual use of the property, or could be considered a “builder” within the meaning of the Excise Tax Act (e.g. if a substantial renovation was done).
There are, however, exemptions to these anti-flipping tax rules in certain circumstances, which include:
- The death of the taxpayer or a person related to the taxpayer;
- One or more persons related to the taxpayer becomes a member of the taxpayer’s household or the taxpayer becomes a member of the household of a related person;
- The breakdown of the marriage or common-law partnership of the taxpayer if the taxpayer has been living separate and apart from their spouse or common-law partner for at least 90 days prior to the disposition;
- A threat to the personal safety of the taxpayer or a related person;
- The taxpayer or a related person suffers from a serious illness or disability;
- An eligible relocation of the taxpayer or the taxpayer’s spouse or common-law partner;
- An involuntary termination of the employment of the taxpayer or the taxpayer’s spouse or common-law partner;
- The insolvency of the taxpayer; or
- The destruction or expropriation of the property.
If a taxpayer does not comply with these anti-flipping rules, CRA could assess a gross negligence penalty, in addition to interest charges.
KH/Dunkley Law Group recommends that any person intending to sell a residential property within one (1) year of its purchase should consider speaking with an accountant or tax advisor to fully understand the tax implications of such disposition. Our experienced real estate lawyers would love to assist any of our clients with all of their real estate needs, including when looking to buy or sell a property. Please contact us today and let us know how we can assist you.
Prepared by Stephanie Sue Wan Wong, Barrister & Solicitor.
This memorandum is for informational purposes only, does not constitute legal advice or an opinion, and does not create a solicitor-client relationship. This is an overview and is not intended to be a complete and exhaustive explanation of the concepts covered. This information may become inaccurate based on passage of time or changes in the law. Nothing herein should be relied upon without seeking the advice of a lawyer.