Federal Anti-flipping Tax


After Jan. 1, 2023, anyone who sells a property which they possessed for less than 12 months will be considered to have ‘ flipped’ the house and any gains will be taxed as business income.

The federal government is getting less permissive with this strategy of flipping properties. That is, buying a property with the intention to turn around and sell it in the near future in order to make a profit.
Under changes proposed in the recent budget update, new “anti-flipping ” rules will come into effect on Jan. 1, 2023. After that, anyone who sells a property which they possessed for less than 12 months (specifically, 365 successive days) will be considered to have “ flipped ” the house and any gains from the deal will be taxed as business income. This means the gain, less any associated charges, will be completely taxable at the time of the trade, just as though the seller earned the money in other employment.

Presently, the trade of one’s primary home is non-taxable in Canada, under the star Principal Residence Exemption (PRE). There are some conditions that need to be fulfilled to qualify, similar to actually living in the home for at least part of the time, but the government is looking to save this duty-free strategy for Canadians who wish to use their “ houses as homes.”
 A person can buy a property for rental purposes, reporting the rental income, which is taxable but can be neutralized by deductions for expenditures, such as mortgage interest, property levies, insurance and maintenance fees. Typically, if this non-principal residence is sold, any gains are tested as capital earnings, meaning 50 per cent of the gain is duty-free and only the remaining 50 per cent is tested. Still, under the new anti-flipping measure, if the property wasn’t bought with the intention to produce rental income, 100 per cent of the gains are taxable.

The federal government is allowing certain immunity from this taxable situation for life events, such as death, breakdown of a relationship, serious illness or disability, relocation for work, or bankruptcy.
Caution is needed when flipping houses. However, the gain will be 100 per cent taxable to you, If CRA determines that you bought a property with the intent of a quick trade. It’ll not meet the PRE, nor will it be preferentially tested as a capital gain on the trade of a rental property. 

Have questions on how this could affect your investment goals for 2023? Contact a member of our team and we’ll be happy to discuss the best gameplan for you.