The New Residential Property Anti-Flipping Rules
The 2022 Federal Budget announced new anti-flipping rules for residential real estate which came into force on January 1, 2023.
The new rules will disallow the use of the principal residence exemption and the 50% capital gains inclusion rate on the sale of residential real estate in Canada, including a rental property, if it is owned for less than 12 months. Instead, the gain will be 100% taxable as business income. The rules apply to dispositions occurring in 2023 and later years.
However, under the proposed rules, any capital loss from the disposition of a flipped property will not be deemed to be a non-capital loss that could offset other income.
The rules are designed to “reduce speculative demand in the marketplace and help to cool excessive price growth” and ensure that profits from flipping residential real estate are subject to full taxation.
The November 3, 2022 Federal Economic and Fiscal Update expanded the rule to also apply to profits from assignment sales.
Exceptions to the anti-flipping measure will apply to certain life circumstances such as: 1) death, 2) serious illness or disability, 3) birth of a child, 4) job loss or relocation, 5) a divorce, 6) insolvency, 7) threat to personal safety, or 8) property deconstruction.