Canada Property Flipping Tax Guide
the property flipping tax rules in Canada. The CRA's position — the "property flipping is considered the business activity, NOT the capital investment" — the "profit from the flipping is the 100% taxable as the business income, NOT the capital gain at the 50% inclusion rate". The principal residence exemption is typically NOT available for the flipped properties (the "CRA denies the PRE if the property is bought with the intention to flip"). The GST/HST may apply to the "sale of the substantially renovated residential property". The 1-year rule — the "CRA's administrative policy considers the property sold within 365 days of the purchase as the flipped property". The indicators of the flipping — the "intention at the time of the purchase", the "short holding period", the "frequency of the flipping transactions", the "nature and the extent of the renovations", the "marketing and the selling efforts".
Business Income vs Capital Gain
- Business income (100% taxable): The "profit from the flipping is the business income — the full amount is included in the income". The "CRA factors: the intention to resell at the profit, the short holding period, the extensive renovations, the frequent transactions".
- Capital gain (50% taxable): The "sale of the investment property held for the long term" — the "50% inclusion rate applies". The "CRA factors: the long holding period (the 2+ years), the rental use, the lack of the renovation, the passive investment approach".
- Principal residence exemption (PRE): The "PRE is denied if the property is bought with the intention to flip" — the "CRA's anti-flipping rules deny the PRE for the properties held for the less than the 365 days".
GST/HST on the Flipped Properties
- New housing and the substantial renovation: The "GST/HST applies to the sale of the new housing and the substantially renovated housing". The "substantial renovation: the removal or the replacement of the 90%+ of the building components".
- Flipped property and the GST/HST: The "flipper who substantially renovates the property must charge the GST/HST on the sale" — the "flipper can claim the GST/HST paid on the purchase (the 'input tax credit')".
- GST/HST new housing rebate: The "buyer of the flipped property may NOT qualify for the GST/HST new housing rebate" (the "rebate is available only for the primary residence purchase from the builder").
Reporting the Flipping Income
- Form T2125: The "Statement of Business or Professional Activities" — the "report the flipping income and the expenses". The "deductible expenses: the renovation costs, the real estate commissions, the legal fees, the interest on the flipping loan, the property tax, the utilities".
- GST/HST registration: The "flipper must register for the GST/HST if the total revenue exceeds $30,000 in the 4 consecutive quarters" — the "charge the GST/HST on the sale and the input tax credits on the expenses".
For the principal residence exemption, see our Principal Residence Exemption Guide →. For the GST/HST on the new housing, see our GST/HST New Housing Rebate Guide →.