Canada has introduced a new deeming rule for the 2023 taxation year that will impact residential property owners engaging in property flipping for capital gains. The rule will require property owners (rental owners included) to report profits from the sales of any property that was purchased and sold within a 365-day period as business income unless it meets the criteria for exemption. This means all disposed profit incurred from property flipping is fully taxable and won’t qualify for the 50-per-cent capital gains inclusion rate.

According to the CRA, a flipped property is “any housing unit in Canada that isn’t already considered to be inventory of the taxpayer and was owned by the taxpayer for less than 365 consecutive days prior to the disposition (12-month holding period).”

A transaction could be excluded if the circumstances align with one of the accepted exemptions outlined by the CRA. This includes the death of the taxpayer, a relative joining the household; a divorce/separation, bankruptcy, illness, or disability, among other life events.

In the case of a taxpayer who owns a right to acquire a housing unit located in Canada, the 12-month holding period resets once the taxpayer who entered into a purchase and sale agreement secures ownership of the property.

The 2022 Fall Economic Statement proposed that this deeming rule will be extended to include profits arising from the disposition of the rights to purchase a residential property via an assignment sale. Profits arising from an assignment sale would be deemed to be business income if the rights to purchase a property were assigned before the end of the 12-month holding period. The 12-month holding period would reset once the taxpayer who entered into a purchase and sale agreement secures ownership of the property.

For the full details, click here: Residential Property Flipping Rule – Canada.ca