A recent publication from MP Karen Vecchio (Elgin-Middlesex-London) has raised some concerns regarding the new tax law that came into effect on January 1st, 2023. The legislation could have significant tax ramifications for those homeowners who sell their property within one year of purchase.
To shed some light on this matter, we have referenced pertinent portions from two widely circulated "News 2 Me" bulletins of CREA (Canadian Real Estate Association), which were disseminated to all Members last year.
New rules to ensure profits from flipping properties are taxed "fairly." These proposed rules will be triggered when a property is held for less than 12 months. The government notes, importantly, the measure is intended to make sure flippers pay their "fair share while protecting the current, vitally important, principal residence exemption for Canadians who use their houses as homes."
Residential Property Flipping Rule; Coming into force: January 1, 2023.
Budget 2022 proposed to introduce a new rule to ensure profits made from flipping residential real estate are subject to full taxation. Specifically, profits arising from dispositions of a residential property (including a rental property) that was owned for less than 12 months would be deemed to be business income.
Bill C-32 defines 'flipped property' as: "a housing unit of a taxpayer located in Canada that was owned by the taxpayer for less than 365 consecutive days (less than a year) prior to the disposition of the property". The measure would apply in respect of residential properties sold on or after January 1, 2023.
Full details from the Government of Canada can be found here.
It is important to note that there are several exemptions applicable to Canadians who sell their homes under specific life circumstances, such as disability, the birth of a child, a new job, divorce, or death. Moreover, it's essential to review the information provided above and be well-informed about these exemptions to help identify scenarios where your clients may require professional legal or accounting advice regarding potential tax liabilities. This knowledge will enable them to make informed decisions and take the necessary steps to mitigate any potential risks.