The new Anti-Flipping Rule
2023 Has come with a slew of changes to Canada's real estate laws and tax implications. The new Anti Flipping Rule applies if you make a profit on a property owning it less than 365 days. This profit is deemed to be 100% income, not capital gains, and taxable at your marginal tax rate, which can be as high as 53.3% or if you have a active corporation 12.2%
The major part of this rule is that it applies to your principal residence! That's even if you had good and true intentions of living in the property.
The majority of investors that will be effected with be those whose strategy is in Assignments, which is selling your purchase contract before the property is built, or 'registered' meaning then the mortgage kicks in.
There are some exlusions such as:
- Taxpayer died
- A related person joining the household
- Divorce/separation
- Personal safety concern as a result of owning the property
- Illness or disability
- Moving for a qualified employment reason
- Being let go from your employment
- Bankruptcy/insolvency
- Destruction/expropriation of your property
CRA's rules for how long a buyer has to hold a property is vague and not necessarily 365 days. It all depends on intent. If you are a secret flipper, meaning you flip homes and declare capitals gains and not income, CRA might come after you for incorrect tax filing. Flipping homes by holding it over a year doesn't mean you get the capital gains exception. If you do these flips often, then CRA knows you are a regular flippers, just taking your time.
With the new anti-flipping rule, if you somehow get a loss from your investment, sorry, you can't declare the loss towards your income.
It is suggested you speak with your accountant in regards to how this new rule will effect you if you are in the business of flipping homes. If you are a regular homeowner, just be aware you shouldn't sell right away as this rule may come back and bite you.
Contact me for more information!