New residential property flipping rules coming into effect in 2023

Take a closer look at the new Residential property flipping rules coming into effect in 2023 for all those with rental properties, investment homes or are “flipping properties”.

The Canadian tax rules distinguish between a capital gain, which is currently 50% taxable, and income gains, which are fully taxable. The principal residence exemption is a provision in the Canadian tax legislation that provides a tax-free gain on the sale of a residence that meets the definition of a principal residence.  I believe most of know this and have lived with this tax regime and knowledge for some time.

However, be advised, in the Federal Budget the government is clearly concerned that individuals who purchase real property, including rental property, with the intention of reselling within a short period of time (“property flippers”) are incorrectly reporting their gain on resale as a capital gain taxed at 50%, or in some cases as a tax-free gain from the disposition of a principal residence, rather than as fully taxable income.

To address this, the recent Federal Budget proposes to treat the disposition of real property held for less than 12 months as fully taxable income. Except in limited circumstances that would be beyond a taxpayer’s control, such as death, marital breakdown, addition of family members, disability, change of place of work, and insolvency.  We are not sure how those exceptions would be addressed yet.

It is proposed that this measure would take effect in respect of residential properties sold on or after January 1, 2023. The government will be issuing draft legislation with respect to this measure and we will keep you posted on this.