MELANIE GESY NEWS

Flipping houses - buying a property, renovating it, and then selling it quickly for a profit-can be an attractive investment strategy in Canada's real estate market. However, it's essential to understand the tax implications and rules set forth by the Canada Revenue Agency (CRA) to ensure compliance and avoid unexpected tax liabilities. 

A "flipped property" is a dwelling that was owned by the taxpayer for less than 365 consecutive days prior to the disposition (12-month holding period) unless the disposition can reasonably be considered to occur due to life events, such as, but not limited to:

• death
• divorce
• permanent disability
• natural disasters

Details of house flipping include:

1. Business Income vs. Capital Gain:

This is a new rule from The CRA. They now view profits from flipping houses as business income rather than capital gains. This means that any profit you make from flipping a property is generally considered taxable income and is subject to your marginal tax rate. It's crucial to keep detailed records of all expenses related to the property purchase, renovations, and sale. This includes invoices, receipts, and contracts with contractors or renovation professionals.

2. Intention to Resell:

The CRA assesses your intention when purchasing a property. If you buy a property with the primary purpose of renovating and reselling it for profit, they may consider you to be conducting business activities rather than making a personal real estate investment. Factors that the CRA considers when determining your intention include the length of time you hold the property, the number of properties you buy and sell, and the extent of renovations performed.

3. Reporting Requirements:

If you engage in frequent property flipping, the CRA may require you to report your real estate activities as business income on your tax return, rather than as capital gains. You must accurately report all income earned from flipping houses and ensure that you comply with CRA regulations regarding business income reporting. 
 

4. Principal Residence Exemption:

The principal residence exemption allows Canadian residents to shelter capital gains from the sale of their principal residence from taxation. However, this exemption may not apply if you are flipping houses frequently and the properties are not used as your primary residence. It's essential to consult with a tax professional to determine whether a property qualifies for the principal residence exemption based on your specific circumstances. 
 

5. GST/HST Considerations:

Depending on the nature and scale of your house flipping activities, you may be required to collect and remit Goods and Services Tax (GST) or Harmonized Sales Tax (HST) on the sale of properties. 
If you exceed certain thresholds for taxable supplies, you may need to register for a GST/HST account with the CRA and charge applicable taxes on property sales. 
 

6. Seek Professional Advice:

Given the complexity of tax regulations surrounding real estate transactions, it's highly recommended to consult with a qualified tax advisor or accountant who specializes in real estate taxation. A professional can provide personalized guidance based on your specific situation, help you understand your tax obligations, and assist in structuring your house flipping activities to minimize tax liabilities. 
 

Understanding and adhering to the Canada Revenue Agency's rules and guidelines is essential for individuals engaged in house flipping in Canada. By maintaining accurate records, reporting income correctly, and seeking professional advice, you can navigate the tax implications of flipping houses and ensure compliance with CRA regulations. Remember, proper tax planning and transparency are key to a successful and compliant house flipping venture.

For more information on the tax implications, visit the CRA's website here.

If you have tax related questions, give me a call at 780-995-5236.