Real Estate Insights: Navigating the Flipped Property Rules
April 7, 2025
Sector:
In the ever-evolving world of real estate, understanding tax rules is crucial. This is especially true when the Canada Revenue Agency (CRA) and Revenu Québec ramp up their reviews of real estate transactions. With a $73.1 million investment from the federal government over the next five years, the focus is on ensuring tax compliance in the housing sector. This article covers the flipped property rule, its effects, and strategies for navigating it to avoid unexpected costs.
Introducing the Flipped Property Rule
In the 2022 Budget, the federal government introduced new rules targeting flipped residential properties that cam into effect on January 1, 2023. As such, “property flipping” (where homes are bought and resold within a short period for profit) now faces stricter regulations. The new rule aimed to tax gains from homes sold within 365 days of purchase as business income, disqualifying them from capital gains inclusion or the principal residence exemption. Corresponding losses are denied, with only reasonable expenses eligible for tax deductions.
Exceptions to the Rule
Exceptions to the flipped property rule include events of Force Majeure such as death, marital breakdown, family additions, disability, insolvency, job relocations, involuntary termination, personal safety threats, or expropriation.
Legislation from August 2024 also excludes property transfers upon a beneficiary’s death, which is welcome news.
What activities can be caught?
Various situations can fall within the scope of the flipped property rule. The CRA has issued clarifications on its application in corporate contexts. Here are some sample scenarios – although this list is not exhaustive:
- Two corporations amalgamate and one of the amalgamating entities holds residential property for less than 365 days.
- This will be a business income and not capital sale – since amalgamation is a disposition for tax purposes.
- A parent corporation receives residential property from its subsidiary that is held for less than 365 days prior to wind-up.
- A windup is also a disposition and hence, this will be considered a business income.
- A corporation transfers residential property that it has held for less than 365 days to a related corporation as part of a rollover under section 85.
- Similar consequences apply for individuals transferring to corporations when the property was held for less than 365 days.
- Cases when there is an estate freeze of a corporate entity which holds real property.
- While not all transactions invite the flipped property rule, an estate freeze must do an analysis for flipped property rules where relevant.
It is important to note that in all the above examples, the 365 day de minimus clock is reset.
Guidance and Advice
The flipped property rule provides a guideline. The notion of whether a property disposition is capital or income can be a question of fact, even when held for more than 365 days. For any real property transaction, please contact us for a consultation: info@krestongta.com
How Kreston GTA Can Help
At Kreston GTA, we understand the pressure financial reporting teams are under in this dynamic environment. Whether you need assistance with impairment testing, going concern evaluations, or clear disclosures tailored to your industry, our team of experienced audit and advisory professionals can help.
We offer:
- Personal and Corporate tax preparation and advice
- Tax and Estate planning
- Comprehensive service and access to experts
