Flipping Houses Tax Rules in Canada: The Residential Property Flipping Rule

A house flip is buying a home and selling it after a short time for a profit. Since January 1, 2023, a federal deeming rule treats the profit on a home owned for less than 365 consecutive days as business income, and a home held longer can still be taxed that way. This page is part of WealthNorth’s real estate tax guide; for a property bought to rent, see capital gains on rental property, and for your own home, the principal residence exemption guide.

The residential property flipping rule

Since January 1, 2023, the profit on a home in Canada you owned for less than 365 consecutive days is business income (fully taxed, with no principal residence exemption) unless the sale was due to a listed life event: death, a household change, a relationship breakdown, a threat to safety, serious illness or disability, job loss, a relocation for work or school, insolvency, or the home's destruction or expropriation. The rule’s conditions and exceptions, from the CRA:

• The property is a housing unit in Canada (including a rental), not already inventory.
• You owned it for less than 365 consecutive days before selling.
• The profit is business income, fully taxable, and the principal residence exemption doesn't apply.
• 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 a pre-construction purchase, the holding period restarts when you take ownership, and an assignment sold before then is caught too.

One more point from the same CRA page: Any losses resulting from the sale of a flipped property is deemed to be nil.

Business income compared with a capital gain

The gain on the sale of real estate is the difference between what the property is sold for and its cost. When the profit is business income, all of it is added to your income; when it is a capital gain, 50% of it is. In this example, the same profit is shown both ways: a home is bought for $600,000, renovated for $40,000 and sold for $750,000, and the seller lives in Ontario with $100,000 of employment income in the year of the sale .

The tax figures come from the site’s tax model, which includes the Ontario surtax and the Ontario Health Premium; the difference between the two columns is $25,787 in this example. The capital gains tax calculator and marginal tax rate calculator work with your own figures.

Presale and assignment sales

For a pre-construction purchase, the holding period restarts when you take ownership, and an assignment sold before then is caught too. The CRA’s guidance on buying real estate to sell for a profit goes further for assignments: “You must report any profit from an assignment sale as business income in the tax year in which you assigned your rights.” It adds: “If the property is a new build (not yet occupied), the total amount received from the assignment sale, including any deposit paid, is subject to goods and services tax / harmonized sales tax (GST/HST).”

Homes held longer than the holding period

Owning a home for 365 days or more takes it outside the deeming rule, but not automatically into capital gains treatment. Where the rule doesn’t apply, the CRA says it would remain a question of fact whether profits from the disposition are taxed as business income or a capital gain.

If your return is audited, the factors the CRA considers in deciding whether a real estate sale was reported correctly include: the type of property sold; how long you owned it; your history of selling similar properties; whether you did any work on the property; why you sold the property; and your intention in buying the property.

The CRA contrasts two cases on its page about buying real estate to sell for profit. For buying to flip: “The taxpayer may have lived in the property while making improvements. However, this does not entitle them to the principal residence exemption, because the intention was always to buy, improve and sell for profit.” For buying to rent: “In this scenario, a taxpayer buys a property to earn rental income. When the property is sold, you must report any profit as capital gain.”

GST/HST on a substantially renovated home

The CRA’s GST/HST rules for a renovated home, from its home construction page and in Guide RC4028:

• You are a builder if you bought the housing intending to substantially renovate and resell it, even if it is a one-time event.
• Builders have to collect and remit GST/HST on their taxable sales of new or substantially renovated housing, unless an exception applies.
• A substantial renovation generally means that 90% or more of the interior of the existing housing is removed or replaced.
• An individual who builds or renovates other than in the course of a business or an adventure or concern in the nature of trade, such as for their own home, isn't a builder.
• The sale of housing after a renovation that isn't substantial is generally exempt, as are most sales of previously occupied residential housing.

Related pages

• Capital gains on rental property
• Principal residence exemption guide
• Converting your home to a rental
• Real estate tax guide