The Federal government’s new flipping rules are now law under the Fall Economic Statement Implementation Act, 2022. This law applies to any sales that occur after January 1, 2023.
If you own a Canadian residential property for less than 365 consecutive days, then the profits from the sale are deemed to be business income, and are fully taxable as business income unless an exception applies. The principle residence exception rule is no longer available to reduce the tax.
The exceptions are:
* Death of the taxpayer or a related person
* Related person joint the household (eg. new child, elderly parent) or the tax payer is joining a related persons household
* Breakdown of marriage or common law partnership of the tax payer (must be living apaart for 90 days prior to the sale)
* Threat to the personal safety of the tax payer or related person
* Disability of serious illness of the taxpayer or related person
* Work relocation (new home is 40km closer to the work place) of the tax payer or spouse
* Involuntary termination of employment to the taxpayer or spouse
* Insolvency of the taxpayer
* Destruction or expropriation of the property
Even if one of these exceptions applies, it is still a question of fact to determine whether the gain will be taxed as business income or capital gain.
Trying to get around it?
If you assign a sale contract for a gain within 12 months, then you would be deemed to have received business income.
What if you don’t report the gain as business income?
You could be assessed a gross negligence penalty equal to 50% of the additional taxes owing, plus interest charges.
What about GST?
You may be required to charge GST on a sale depending on the actual use of the property, as well as if you are considered a “Builder” which include a scenario where substantial renovations were completed.
The sale by an individual of a residential condo or home, by way of assignment is taxable for GST regardless of the reason for the acquisition of the property.
This is a complex rule. If you are selling a property you should speak with an accounting or tax professional for advice on the tax implications. We are real estate lawyers but not accountants, so this article is for information only and should not be relied on as tax advice. We are happy to help with the conveyancing when looking to buy or sell a home. Contact Us today with questions or to get started.