Profits on sale of residential property held for less than 12 months would be taxed as business income
Canadians who sell a home or rental residential property that they’ve held for less than 12 months will be considered to be flipping — and will see profits from a sale taxed as business income.
The proposed anti-flipping measure, announced in the federal budget released Thursday, would apply to residential properties sold on or after Jan. 1, 2023.
“Property flipping — buying a house and selling it for much more than what was paid for it just a short time prior — can unfairly lead to higher housing prices,” the government said in the document. The proposed measure will “ensure profits from flipping residential real estate are always subject to full taxation,” while “protecting the current, vitally important, principal residence exemption for Canadians who use their houses as homes.”
Profits from flipping properties are fully taxable as business income, and are not eligible for
either the capital gains inclusion rate or the principal residence exemption.
Under current rules, “the burden is on the [Canada Revenue Agency] to prove that your intention was to flip [a property],” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth. “Now, they don’t have to prove it anymore, because there’s a law that says, ‘If you flip it within a year, you’re going to pay business income tax.’”
Keith MacIntyre, tax partner with Grant Thornton LLP in Halifax, said such an anti-flipping rule “probably should have always been in place.”
“It does seem like a common-sense rule to prevent those people out there who are speculating [on residential real estate],” MacIntyre said.
Exemptions to the proposed anti-flipping rule would apply for Canadians who sell their home within 12 months due to certain life circumstances, such as death, disability, the birth of a child, a new job or a divorce. The exemptions will be set in forthcoming rules put forward for consultation in draft legislation, the government said.
The government added that where the proposed deeming rule doesn’t apply because of an eligible life event exemption, or the property was owned for 12 months or more, it would remain “a question of fact” whether profits from the disposition would be taxed as business income.
The proposed measure would raise $64 million in revenue over the next five years, the government estimated.
Other key proposed housing measures announced in the 2022 federal budget included:
- The Tax-Free First Home Savings Account (FHSA), which would allow first-time homebuyers to save up to $40,000. Similar to an RRSP, contributions would be tax-deductible; like a TFSA, account withdrawals to buy a first home — including investment income — would be non-taxable.
- A doubling of the home buyers’ amount to $10,000, which would provide up to $1,500 in tax relief to eligible home buyers. Spouses or common-law partners would continue to be able to split the value of the credit as long as the combined total does not exceed $1,500 in tax relief. The measure would apply to acquisitions of a qualifying home made on or after Jan. 1, 2022.
- An increase to the annual limit of the home accessibility tax credit to $20,000. This measure would apply to expenses incurred in the 2022 and future years.
- The introduction of a multigenerational home renovation tax credit, a refundable credit that would recognize eligible expenses for creating a secondary dwelling unit to allow a senior or a person with a disability to live with a qualifying relative. The value of the credit would be 15% of the lesser of eligible expenses and $50,000. This measure would apply for 2023 onward for work performed and paid for and/or goods acquired on or after Jan. 1, 2023.
- New restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for two years.
Source: Investment Executive