Imagine this: you’ve just bought a charming fixer-upper in a bustling neighbourhood. You roll up your sleeves, invest time and money into renovations, and within a few months, you’re ready to sell it for a tidy profit. Sounds like a dream, right? Well, not so fast. If you’re in Canada, you might want to familiarize yourself with the new anti-house flipping rules before you start counting your profits. These rules, introduced to curb speculative investments and stabilize the housing market, could significantly impact your bottom line. Let’s dive into what these rules entail and how they might affect you as a small business owner or an individual looking to flip properties.

What Are the Anti-House Flipping Rules?

Starting January 1, 2023, any gain from the disposition of a housing unit or a right to acquire a housing unit that you owned or held for less than 365 consecutive days before its disposition is deemed to be business income, not a capital gain – unless the situation meets one of the exceptions described below. This means that the profits from such sales are fully taxable as business income, which could lead to a higher tax bill compared to capital gains, which are taxed at a lower rate. The principal residence exemption cannot be used to offset gains from flipped properties.

Key Provisions of the Anti-House Flipping Rules

1. 365-Day Rule: If you sell a property within 365 days of acquiring it, the gain is considered business income, and not a capital gain. No principal residence exemption available. This rule applies to both housing units and rights to acquire housing units.
2. Life-Event Exceptions: There are several exceptions to the 365-day rule. If the sale of the property is due to certain life events, the gain may not be treated as business income, and the principal residence exemption may still be available. These exceptions include:
   • Death of the taxpayer or a related person
   • A related person joining the taxpayer’s household or the taxpayer joining a related person’s household (i.e. birth or adoption of a child, care of an elderly parent)
   • Breakdown of a marriage or common-law partnership
   • Threats to personal safety
   • Serious illness or disability of taxpayer or related person
   • Involuntary termination of employment of taxpayer or spouse/common-low partner
   • Insolvency
   • Eligible relocation for work
   • Expropriation of the property
   • Destruction of the property by a natural or man-made disaster
3. Insolvency Exception: If you sell a property because you are unable to meet your basic personal expenses and are relying on other forms of debt, such as credit cards, to pay for your needs, the sale may qualify for the insolvency exception.
4. Losses from flipped property: If the housing market declines and you end up losing money, the loss is not deductible.

Practical Tips for Navigating the Anti-House Flipping Rules

1. Plan Your Flips Carefully: If you’re in the business of flipping houses, consider extending your holding period to more than 365 days to potentially benefit from the lower capital gains tax rate and principal residence exemption.
2. Document Everything: Keep meticulous records of your transactions and any life events that might qualify for an exception. This will be crucial if you need to prove your case to the Canada Revenue Agency (CRA).
3. Consult a Tax Professional: The anti-house flipping rules can be complex, and the implications for your taxes can be significant. Consulting with a tax professional can help you navigate these rules and optimize your tax strategy. Your McCay Duff consultant would be pleased to answer any questions you may have.

Contact McCay Duff LLP in Ottawa to Help You Navigate the Residential Property Flipping Rules

A professional tax expert is well-versed with tax laws and calculations and can help you diversify your investments across various assets and structures to help you enjoy most of your wealth instead of giving it away in taxes. To learn more about how McCay Duff LLP can provide you with the best investment and tax planning expertise, contact us online or by telephone at 613-236-2367 or 1-800-267-6551.