Federal Budget Update: 2022 - Property Flippers - Beware!

By Slonee Malhotra and Mirjana (Mira) Markovic

It is not uncommon for savvy investors to purchase property, renovate, and then resell for a gain. This process is known as “house flipping”. While it was once common for investors to flip houses “on the side”, over the last few years, we have seen investors take up house flipping as a career. On resale, investors currently pay tax at 50% of the capital gain. This is about to change under the proposed Federal Budget Update 2022.

Effective as of January 1, 2023, individuals who sell property owned for less than 12 months will be considered to be “flipping” and any profits associated with the resale shall be taxed as business income. Such property shall not be eligible for either the capital gains inclusion rate or the principal residence exemption.

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.”

Under the current regime, the burden is on the CRA to prove an individual(s) intention was to flip a property however with the introduction of the new policy, the CRA is no longer required to prove this; if a property is flipped within a year, there is an automatic assumption that the associated profits are fully taxable as a business income - unless an exemption applies.

The new rule provides exemptions 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 residential real estate lawyers at SorbaraLAW are available to assist you in determining whether you qualify for an exemption should you require assistance. This post was written by Mira Markovic and Slonee Malhotra, qualified real estate lawyers with SorbaraLAW. Mira can be reached at (519) 741-8010 ext.295; Slonee can be reached at 519-749-4606.