Today I want to dive into a topic that’s been on the minds of many in the real estate investors: Canada’s anti-flipping tax rule changes. In a recent YouTube video, I broke down the implications of these rule changes and what they mean for investors and professionals alike. I have highlighted some key points about the changes, including the new “inflexibility” – but all is not lost. There are still some potential opportunities out there!
Video Transcript: Canada’s anti-flipping tax rule changes
The residential property flipping rule.
The government announced that they were trying to provide more certainty for scenarios where someone would sell a property within a year of owning the property. In particular, the government wanted to ensure that that transaction was treated as income as compared to a capital gain.
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Why change anti-flipping tax rules?
But with respect to the flipping rules. At first, I was puzzled why the government was going through this route because there had been a number of court cases over the years that dealt with this and I thought the law, relatively speaking, was well defined to the degree it could be.
Whether done by design or accident, the government, however, has removed a lot of discretion that judges used to have.
Exceptions have little flexibility
So, for example, someone may have been forced, practically speaking, to sell a property because of financial distress of a corporation. And because Revenue Canada or the Department of Finance has identified specific reasons that can be exceptions to the one-year rule if your exception is not specifically mentioned, you’re out of luck the way things are written currently.
Time will tell as well, whether because of these changes, what happens if you sell the property just beyond the one year deadline? Beforehand, I would suggest the rules were relatively clear based on court cases.
Property as inventory when flipping
As well, it appears, because of the deeming of these properties to be inventory, that we are no longer able to within that first year transfer a property that was perhaps personally owned to a corporation and there’s other transfers as well because of the fact that they’re inventory.
Opportunities still available even when flipping
Lastly, on the plus side, there are apparently some opportunities or a little bit of a loophole where you have, as an example a prebuild property.
Membership has its privileges, though. I’m going to reserve that opportunity for clients. I’m George Dube, saving the world from tax one bow tie at a time™.
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Resources
For additional resources related to anti-flipping tax rule changes and flipping properties:
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Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
