This Insight was prepared with the assistance of articling student Skylar Ferbers
"Property flipping" refers to buying and reselling residential properties over a short period of time in order to realize a profit.
Due to the potential for high rewards, the process of buying, renovating and then reselling houses has risen in popularity in Canada. However, it is critical for investors to be aware of the tax implications of property flipping.
How is the sale of a property taxed?
The sale of a property can be classified as either a business activity or an investment, and this classification has a significant impact on your take-home income. If it is classified as a business activity, 100% of the income is taxable as business income. If it is classified as an investment, the gain realized on the property's sale is considered a capital gain with one-half of such gain being taxable.
One of the primary considerations in determining if the sale of a property is business income or investment income is the taxpayer's intention. Buying a property with the intention of flipping it for a profit is generally considered a business activity for tax purposes. Whereas, buying a property with the intention to live in it or to earn rental income – which you happen to profit from when sold – is generally considered investment income. Additionally, the sale of a principal residence is typically fully exempt from tax.
As you can imagine, it often proves difficult to determine the true intention of the taxpayer, and whether any individual sale of a property should be taxed as business income or investment income.
Federal residential property flipping rule
In an attempt to clarify whether a sale of a property is considered a flip, the federal government has introduced an "anti-flipping tax" for dispositions occurring on or after January 1, 2023. The purpose of the tax is to discourage housing speculation and, hopefully, create more affordable housing in the process.
Under the new rules, any property sold which has been owned for less than 365 consecutive days will automatically be considered a flipped property. When triggered, the anti-flipping rule deems any capital gains realized on the disposition of a property as business income, which is 100% taxable. This rule applies equally to a principal residence. That said, there are various exceptions for things like death, divorce, safety issues, serious disability or illness, employment-related relocation and insolvency. More information about the federal anti-flipping tax can be found on the Government of Canada's website.
With this legislation being federal, it applies equally across Canada. Some provinces have also begun implementing their own legislation in an effort to cool the housing market and support supply. Provincial legislation will be applied on top of the federal anti-property flipping tax. Currently, British Columbia is the only western province with anti-property flipping legislation. However, we anticipate that other provinces will soon follow suit.
BC anti-property-flipping legislation
In 2024, BC passed Bill 15 which included the Residential Property (Short-Term Holding) Profit Tax Act (BC). The Act, which took effect January 1, 2025, imposes a tax on 100% of the income earned from selling a property that was owned for less than 730 days. Property purchased before the Act's effective date is subject to the tax if sold before two years of ownership have elapsed. The exact tax rate that applies depends on the number of days the property was held. The longer that the property is held, the lower the tax rate applied.
Similar to the federal legislation, a variety of exemptions apply for circumstances such as death, serious illness and eligible relocation. For more information on how the BC anti-property flipping tax may affect your business, check out this article.
Other Western provinces: Manitoba, Saskatchewan and Alberta
Currently, no provincial anti-property flipping legislation exists in Manitoba, Saskatchewan or Alberta. However, the federal anti-flipping tax applies across the country and buyers in every province should be aware of how it may affect them. Additionally, buyers in Manitoba, Saskatchewan and Alberta should be alert to any new legislation on the horizon. As excessive price growth in the housing market continues and with BC leading the way by enacting their own legislation, other provinces may soon follow the trend in an attempt to stabilize home prices.
To help navigate or learn more about the taxation of property flipping and how it may affect you or your business, please contact the advisors in MLT Aikins taxation and real estate groups.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
