Written by Me Dominique Marcoux
“Since January 1st, 2023, the profit from flipping residential property (including rental property or a purchase option)” ¹ by a person who has held it for less than a year is subject to full taxation. The purpose of this rule is to make hasty resales, also known as real estate flips, which contribute to rising property prices, less attractive.
In fact, since 2023, a new presumption has been introduced whereby the profits realized by the vendor from such a sale are considered as fully taxable business income. It is therefore no longer possible to benefit from the capital gains inclusion rate or the principal residence exemption when the resale occurs in the year following the purchase. This is a major change considering that business income is 100% taxable while capital gains are only 50% taxable and that the principal residence exemption completely exempts the sale of a property from tax.
However, this new rule does not apply in all situations, as exemptions are provided for certain events, such as if the rapid resale occurs due to death, the arrival of a new child, separation, domestic violence, or serious illness.
In case of uncertainty, it is advisable to consult an accountant or tax professional to qualify the profits from a future sale since even if an exemption applies or if you have held the property for more than one year, the determination of the type of income is still a question of fact.