• by admin
• January 12, 2023

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.

• A doubling of home purchasers’ amount to $10,000 will provide up to $1500 in tax relief for qualifying home buyers. The joint law partners or spouses will continue to be able to split the value of credit as long as the combined exemption does not exceed $1500 in tax relief. This measure will be applicable for acquisitions of an eligible home on or after January 1, 2023.
• The rise of the annual limit in home accessibility tax credit to $ 20,000 will apply to expenses incurred in the year 2022 and future years.
• The introduction of a multigenerational renovation tax credit, a tax refund would recognize eligible expenses for making a secondary dwelling unit to allow a person or senior disability to live with a qualified relative. The tax credit value would be 15% of the lesser of qualifying expenses and $50,000. This tax rule will be applicable for the tax year 2023 and onward for performed work paid for and goods purchased on January 1, 2023, and future. This rule is not appropriate for 2022 and before 2022.
• According to the new rule, further restrictions would prohibit overseas commercial enterprises and people who are not a citizen of Canada or permanent residents of Canada from purchasing non-recreational residential property in Canada for two years.

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.