Understanding the Anti-Flipping Tax in Canada: What You Need to Know
In the financial year, 2022 federal budget introduces the new tax law on property flippers to make them “pay their fair share.” That means if you sell your house or an investment property within a year from the date of the purchase, you have to pay income tax on 100% of the profit as if it is your business income.
According to the current scenario, many taxpayers can sell their houses quickly by claiming the principal residence exemption (PRE) or can claim capital gain (CG) on the investment property. After introducing the anti-flipping measure, Canadian taxpayers who sell their rental residencia property or home held for less than twelve months will be considered for flipping properties. Under the anti-flipping rule, they may have to pay taxes on the total profit.
The government of Canada has introduced new anti-flipping rules for residential properties; this rule is scheduled to apply from January 1, 2023. This tax rule is designated to reduce the market’s speculative demand and help sustain excessive price growth in real estate.
Before the implementation of this new legislation, the onus was on the Canada Revenue Agency (CRA) to prove that a Canadian taxpayer carrying on the business of flipping property that qualifies for taxation of their total profits as business income.
However, there are some exemptions to be claimed for the anti-flipping tax rule, which will be applicable for Canadians who sell their residential property (Home) within 12 months due to certain life circumstances, for example, disability, death, a divorce, a new job, or the birth of the new child. The exemption will establish in upcoming rules put forward for consultation in legislation according to the Canadian Government.
The Canadian Government added that the proposed deeming rule does not apply because the qualifying life events are exempt or the residential property has been owned for at least twelve months. It would remain a question of fact whether profits from the deposition would be taxed as taxable business income.
The proposed tax rule would measure the increase of $64 million in revenue over the next five years, the Canadian Government estimated.
The federal budget announced some other proposed housing measures in the tax year 2022.
This anti-flipping rule proposal, including the allowance to assignment sales, will be effective on January 1, 2023. The proposed legislation was introduced to ensure that investors who flip residential property pay their fair share and play the role of decreasing the house prices for Canadian Nationals, according to the Canadian Government.
RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.