How CRA Views House Flipping
| Treatment |
Tax Rate |
Applies When |
| Business income |
100% taxable |
Intention to flip, frequent sales, short holding |
| Capital gains |
50% taxable |
Investment intention, long holding, passive income |
| Principal residence |
0% taxable |
Actually lived in, no profit intent |
Anti-Flipping Rule (2023+)
Properties Sold Within 365 Days
| Rule |
Details |
| Default treatment |
Business income (100% taxable) |
| Effective date |
January 1, 2023 onwards |
| Holding period |
Less than 365 days from purchase |
| Calculation |
Date of purchase to date of sale |
Exemptions to the 365-Day Rule
| Exemption |
Description |
| Death |
Death of taxpayer or related person |
| Household addition |
New child (birth, adoption, etc.) |
| Separation/Divorce |
Relationship breakdown |
| Personal safety |
Threat to household member |
| Disability/Illness |
Serious disability or illness |
| Employment change |
Relocation for work (40km+ closer) |
| Insolvency |
Bankruptcy or certain insolvency situations |
| Involuntary disposition |
Expropriation, destruction |
If exempt: Still treated based on actual intention (may be capital gain or PRE).
Factors CRA Considers
Indicators of Business Income
| Factor |
Business Income Indicator |
| Short holding period |
Months rather than years |
| Frequent sales |
Multiple properties |
| Renovations for sale |
“Fix and flip” activity |
| Real estate background |
Industry experience |
| Financing |
Short-term, interest-only |
| Not lived in |
Never occupied |
| Marketing timing |
Listed before completion |
Indicators of Capital Gain
| Factor |
Capital Gain Indicator |
| Long holding period |
Years of ownership |
| Rental income |
Passive investment |
| Limited real estate activity |
Only property or infrequent |
| Lifestyle reasons |
Genuine life changes |
| No renovations for sale |
Maintenance only |
Tax Calculation Examples
Business Income Treatment
| Scenario |
Amount |
| Purchase price |
$500,000 |
| Renovation costs |
$75,000 |
| Selling costs |
$20,000 |
| Sale price |
$700,000 |
| Profit (Business Income) |
$105,000 |
| Tax at 43% bracket |
~$45,000 |
Capital Gain Treatment (if permitted)
| Scenario |
Amount |
| Same profit |
$105,000 |
| Taxable capital gain (50%) |
$52,500 |
| Tax at 43% bracket |
~$22,500 |
Difference: ~$22,500 more tax as business income.
Additional Tax Considerations
GST/HST
| Situation |
GST/HST |
| New construction |
GST/HST applies |
| Substantially renovated |
GST/HST may apply |
| Regular resale (used home) |
No GST/HST |
| Builder definition |
May need to collect GST/HST |
Expenses You Can Deduct
| Deductible (Business) |
Not Deductible |
| Purchase costs |
Personal living expenses |
| Renovation materials |
Furniture for personal use |
| Labour (contractors) |
Your own labour |
| Professional fees |
Capital costs (different treatment) |
| Selling costs |
— |
| Financing costs (interest) |
— |
Capital Cost Allowance (CCA)
| If holding property |
CCA rules |
| Rental property |
Can claim CCA (depreciation) |
| Flipping |
Generally not applicable (inventory) |
| Recapture |
Must add back CCA on sale |
Record Keeping Requirements
| Document |
Why Needed |
| Purchase agreement |
Establish cost base |
| All renovation receipts |
Deductible expenses |
| Contractor invoices |
Proof of costs |
| Before/after photos |
Support renovation claims |
| Timeline documentation |
Prove holding period |
| Intention documentation |
Support your position |
| Sale agreement |
Establish selling price |
Principal Residence Exemption (PRE)
Eligibility Requirements
| Requirement |
Details |
| Ordinarily inhabited |
You or family member lived there |
| Designated as PR |
Can only designate one per year |
| Not purchased to flip |
Intention matters |
$$\text{Exempt Gain} = \text{Total Gain} \times \frac{1 + \text{Years Designated}}{\text{Years Owned}}$$
| Example |
Calculation |
| Total gain |
$100,000 |
| Years owned |
3 |
| Years designated |
3 |
| Exempt |
$100,000 × (1+3)/3 = $100,000+ (fully exempt) |
Note: CRA can deny PRE if flipping was the intention.
When to Consult a Professional
| Situation |
Action |
| First flip |
Consult accountant before AND after |
| Multiple properties |
Need tax planning |
| Uncertain about treatment |
Get professional opinion |
| Large profit |
Worth the professional fee |
| CRA audit |
Representation recommended |