Understanding Residential Property Flipping Rules in Canada
The real estate market in Canada has undergone significant regulatory changes to address property flipping. Two key measures are the federal CRA Residential Property Flipping Rule and British Columbia’s BC Home Flipping Tax (effective January 1, 2025). These rules aim to curb speculative property transactions and ensure appropriate taxation of profits derived from flipping activities. Below, we discuss each rule in detail.
Federal CRA Residential Property Flipping Rule
The CRA Residential Property Flipping Rule, effective for dispositions after 2022, targets individuals or entities engaged in buying and selling residential properties for profit within a short time frame. Under this rule:
Definition: A “flipped property” is any residential property in Canada that was owned for less than 365 days before its sale.
Tax Treatment:
The entire gain from the disposition of such property is classified as business income, irrespective of the seller’s intention.
The 50% capital gains inclusion rate does not apply.
The principal residence exemption cannot be claimed.
Scope: The rule also applies to rights to acquire residential property, such as pre-construction condominium assignments.
Deductible Expenses: Reasonable expenses incurred to earn income are deductible, but losses cannot be claimed as business losses.
Exceptions to the Rule
The following life events exempt sellers from the rule:
Death
Marital breakdown
Addition of family members
Disability
Eligible work relocation (over 40 km closer to the new work location)
Involuntary termination of employment
Insolvency
Threat to personal safety
Destruction or expropriation of the property
Cases Not Subject to the Rule
If the property is held for over a year or falls under one of the exceptions, the facts of the case determine whether the gain is treated as business income or a capital gain. Key factors include:
Intention at the time of purchase
Length of ownership
Taxpayer’s profession or business
Frequency of similar transactions
Increased Capital Gains Tax Rate
Effective June 25, 2024, the proportion of capital gains that are taxable increases from 50% to 66.7% for:
Net capital gains exceeding $250,000 per year for individuals.
All net gains realized by corporations and most types of trusts.
BC Home Flipping Tax (2025)
British Columbia introduced the BC Home Flipping Tax under the Residential Property (Short-Term Holding) Profit Tax Act, effective January 1, 2025. This provincial measure complements the federal rule and targets short-term residential property transactions in BC.
Applicability and Scope
Taxable Properties:
Residential properties with housing units or zoned for residential use.
Rights to acquire such properties, including presale contracts for condos.
Ownership Period:
Properties owned for less than 730 days before sale are subject to the tax.
Ownership starts from the date of purchase or presale contract signing.
Exemptions to the BC Home Flipping Tax
Life Events The following personal circumstances allow individuals to sell their property without incurring the BC Home Flipping Tax:
Death of the Owner: The tax is waived for sales related to the death of the property owner.
Marital Breakdown: If the sale occurs as part of a separation or divorce, the exemption applies.
Addition of Family Members: Growing households may need to sell due to the birth or adoption of children.
Health-Related Reasons
Disability: If the property owner or an immediate family member develops a disability that necessitates a move (e.g., to an accessible home), the tax does not apply.
Serious Illness: Moving due to health reasons, such as accessing specialized care, is exempt from the tax.
Employment-Driven Moves
Eligible Work Relocation: A move that brings the seller at least 40 kilometers closer to a new work location qualifies for an exemption.
Involuntary Termination of Employment: Job loss leading to financial hardship and the need to sell is exempt.
Financial Distress
Insolvency or Bankruptcy: Sales triggered by insolvency or bankruptcy are exempt.
Foreclosure or Power of Sale: If the property is sold to satisfy a mortgage lender, the tax does not apply.
Safety and Legal Concerns
Threat to Personal Safety: Situations involving domestic violence, threats, or safety concerns are exempt.
Property Expropriation: If the property is expropriated by a government or authority, the tax is waived.
Destruction or Substantial Damage: Sales of properties damaged by natural disasters (e.g., floods, wildfires, or earthquakes) are not subject to the tax.
Specific Transactions Excluded
Gifts or Transfers: Transfers between family members or as gifts are excluded.
Mortgage Transactions: Sales involving mortgage adjustments, such as renewals or refinancing, are not taxed.
Deemed Dispositions: Transactions treated as deemed dispositions under the federal Income Tax Act are also exempt.
Documentation Requirements
To qualify for these exemptions, sellers may need to provide supporting evidence, such as:
Medical or legal records for health-related exemptions.
Employment letters or relocation agreements for job-related moves.
Death certificates or divorce decrees for personal circumstances.
Insurance claims or government notices for damaged properties.
By clearly defining these exemptions, the BC government ensures that the tax targets speculative transactions while protecting those selling out of necessity.
Tax Calculation
Rate:
20% on net taxable income for properties sold within 365 days.
Decreases gradually over the next 365 days.
Days of Ownership:
Count begins from the purchase date (e.g., closing date) to the sale date.
For presale contracts, the date of contract signing applies.
Comparative Example: Taxpayer Sarah’s BC and Alberta Transactions
Scenario:
Sarah purchases a property in British Columbia (BC) on January 1, 2025, for $500,000 and sells it on December 30, 2025 for $700,000 (ownership period: 364 days).
She also purchases a property in Alberta (AB) on January 1, 2025, for $500,000 and sells it on December 30, 2025 for $700,000.
Tax Treatment: Classified as business income under the CRA rule.
Federal Tax Payable: Assuming a marginal tax rate of 40%, $180,000 × 40% = $72,000.
Total Alberta Property Tax Liability:
Provincial Flipping Tax: $0
Federal Tax: $72,000
Total: $72,000
Comparative Summary
Category
BC Property
Alberta Property
Profit
$180,000
$180,000
Provincial Flipping Tax
$36,000
$0
Federal Tax
$72,000
$72,000
Total Tax
$108,000
$72,000
Recordkeeping and Compliance
Both CRA and BC authorities emphasize thorough documentation for compliance. Retain:
Purchase and sale agreements.
Invoices for renovations or repairs.
Evidence supporting exemptions (e.g., work relocation records).
Correspondence with real estate agents.
These updated rules reflect growing efforts to discourage speculative property activities and ensure fair taxation. Whether under federal CRA rules or BC’s home flipping tax, understanding the nuances of these regulations is crucial for compliance and financial planning.
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December 26, 2024
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