House Flipping Taxes in Canada: Business Income, the Flipping Rule and the PRE (2026)
Updated
This page covers how the profit from buying, renovating and reselling a home is taxed in Canada: business income versus capital gains, the residential property flipping rule, what you can deduct, and when the principal residence exemption still applies. It is part of WealthNorth’s guide to investment property financing. The flipping rule’s full details and CRA examples are in flipping houses tax rules; valuing a flip before you buy is covered in the after repair value guide.
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
You owned it for less than 365 consecutive days before selling.
Also covers
Assignment sales (selling the right to buy a home)
Principal residence exemption
Not available when the rule applies
Exemptions to the 365-Day Rule
The rule doesn’t apply when the sale is due to one of these life events:
Exception: the death of you or a related person.
Exception: a related person joining your household, or you joining theirs.
Exception: the breakdown of your marriage or common-law partnership, after living apart for at least 90 days.
Exception: a threat to the personal safety of you or a related person.
Exception: a serious disability or illness of you or a related person.
Exception: the involuntary loss of your or your spouse's or partner's job.
Exception: an eligible relocation of you or your spouse or partner, for work, business or full-time post-secondary school (the new home generally has to be at least 40 km closer).
Exception: your insolvency.
Exception: the destruction or expropriation of the property.
For example, a related person joining your household can be a birth, an adoption or caring for an elderly parent, and a threat to personal safety includes domestic violence.
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
Borrowed money and short-term financing terms
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
The tax depends on your province and your other income; the examples use an illustrative 43% marginal rate on the whole profit. The marginal tax rate calculator shows the rate that applies to you.
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 an illustrative 43% marginal rate
about $45,150
Capital Gain Treatment (if permitted)
Scenario
Amount
Same profit
$105,000
Taxable capital gain (50%)
$52,500
Tax at the same illustrative 43% rate
about $22,575
Difference: about $22,575 more tax as business income.
CCA claimed is added back to income when the property sells for more than its undepreciated cost
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
Only one home per family unit can be designated for each year
Not purchased to flip
Intention matters
The principal residence formula
The exempt part of the gain is the number of years designated (years you were resident in Canada), plus one if you were resident in Canada in the year you bought it, divided by the number of years you owned it.
$100,000 × (1+3)/3 = $133,333, capped at the $100,000 gain (fully exempt)
Note: The exemption doesn’t apply if the intention was always to buy, improve and sell for profit, or if the residential property flipping rule applies.
If a flip is taxable as business income, your profit is the sale price minus what the flip cost you. Some costs are deducted directly, and others are added to the property’s cost and reduce the profit when you sell: interest, property tax and other costs during the renovation are added to the cost of the building under section 18(3.1) of the Income Tax Act.
Expense
Reduces the taxable profit?
Renovation costs (direct materials, labour)
Yes
Mortgage interest during renovation
Yes, added to the property’s cost
Property tax during ownership
Yes (during the renovation, added to the property’s cost)
Real estate commissions
Yes
Legal fees
Yes
Home inspection fees
Yes, as part of the purchase cost
Carrying costs (utilities during reno)
Yes, added to the property’s cost
Personal labour (your own time)
No: CRA does not allow this
GST/HST on a flip
The sale of a used home is generally exempt from GST/HST. The exception that catches flippers is a substantial renovation: if all or substantially all (generally 90% or more) of the building is removed or replaced, other than the foundation, external walls, interior supporting walls, floors, roof and staircases, you can be treated as the builder of a new home, and the sale generally becomes taxable. The rules are in flipping houses tax rules; get advice before a major renovation.
The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and September 29, 2026. How we check facts.