Since January 1, 2023, the federal residential property flipping rule has taken the judgment call out of short holds. If you sell a housing unit in Canada, including a rental property, that you've owned for less than 365 consecutive days, the profit is deemed business income. Unless an exception applies, it doesn't matter what you intended when you bought it.
What actually changes
A capital gain is only half taxable. Business income is fully taxable. So on a flipped property the taxable amount roughly doubles, and because the gain is no longer treated as capital, the principal residence exemption can't shelter it, even if you lived there. A loss on a flipped property doesn't help you either: it's deemed to be nil.
The rule covers assignment sales too. Selling your right to buy a pre-construction unit within 365 days of acquiring that right is treated the same way.
The life-event exceptions
The rule doesn't apply when the sale is reasonably due to one of a defined list of life events:
- The death of the owner or a related person
- A related person joining the household, such as the birth of a child
- The breakdown of a marriage or common-law partnership
- A threat to personal safety, such as domestic violence
- A serious illness or disability affecting the owner or a related person
- An employment change requiring a move closer to the new work location
- Insolvency
- An involuntary disposition, such as expropriation or the home being destroyed
Each exception has its own conditions, and CRA will ask you to show the event caused the sale. Keep the paperwork from the moment it happens.
Clearing 365 days doesn't make a sale safe. It just means the old intention test applies again.
Past the 365-day mark
Holding for longer than a year takes you out of the deeming rule, not out of scrutiny. CRA can still argue a sale was a business transaction based on your intention, how often you buy and sell, how long you held the property and whether you renovated it to resell. Repeated quick sales get attention whatever the dates say.
Planning around it
Check the date before you list, not after you've accepted an offer. Count from the day you acquired the property, or the assignment right, to the closing date of the sale. If a life event is behind the sale, document it. And if you're close to the line, talk to us before signing. A few weeks can change the tax bill by tens of thousands of dollars.
General information only, not tax advice. Talk to a CPA about your situation.