A new Canada anti-flipping tax is already hitting home sellers where it hurts, in the pocketbook.
The jury is out so far on how effective the anti-flipping tax will be at making Ontario homes more affordable.
What’s happened so far is this.
Qualify for a mortgage in Canada.
You Asked: Is Flipping Illegal in Canada?
It’s not, but property investors who sell a house shortly after buying now owe tax on 100% of any capital gains.
Using a home as a principal residence gives owners favourable tax deductions when they sell. Canada Revenue Agency (CRA) was pursuing home sellers to stop the practice of using the exemption to flip homes even before the new anti-flipping tax took effect.
The new law flips the burden of proof CRA uses in federal Tax Court on its head. It allows CRA to assess business income taxes without having to prove a seller bought and sold a home strictly for profit. How to qualify for private mortgages for property investors.
What is the Anti-flipping Tax (Canada)?
What the anti-flipping law in Canada (2023) is depends on who you talk to –
- a smart way to stop property flips that drive up home prices
- or government interference in Canada’s free market economy.
One thing is certain. It puts a damper on how much investors, renovation contractors, and realtors make on quick home flips, and sellers’ ability to recoup losses.
The anti-flipping tax affects properties sold on or after Jan. 1, 2023, targetting everyone from professional home flippers to do-it-yourselfers. Selling a home anywhere in Canada before a year is up now incurs business tax on any profits you make.
That effectively eliminates your right to —
- capital gains exemptions of 50% of any profits under the Canada Income Tax Act
- use the principal residence exemption to avoid paying any capital gains at all.
Talk to an income tax consultant for capital gains advice, especially if you operate a business from your home.
How to Avoid Anti-flipping Tax
Options to avoid paying the Canada anti-flipping tax are few. Here are some exceptions – ask a tax consultant if you’re unsure:
- You sold because you had to relocate.
- You divorced, or separated at least 90 days before selling.
- Your family expanded, making the home too small for your needs.
- You or a related person become disabled or seriously ill.
- You are fired, laid off, bankrupt, or insolvent.
- The owner or a related person died.
- The home was damaged for reasons beyond your control, like a fire.
Otherwise, check here for how the principal residence exemption applies to your home.
Penalties for Anti-flipping Tax Evaders
Claiming you don’t understand anti-flipping tax requirements won’t save you from a potential gross negligence penalty of 50% of the outstanding taxes.
You’ll be assessed tax at the business income rate (not as capital property you used as a principal residence) and could wind up in Federal Tax Court to argue your case.
Bring a tax lawyer. Self-representation is complicated.
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Review seller representation agreements with Axess Law to ensure they protect your interests if you change real estate brokerages or agents. Your Axess Law real estate lawyer explains terms and conditions you may not understand. What’s in your seller representation agreement (Ontario).
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If you plan to continue to accept offers while possible buyers conduct home inspections, we include a 48-hour clause in your agreement that can require buyers to make an immediate decision.
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