By Rohana Rezel
Canada’s Finance Minister Chrystia Freeland announced a new “flipping tax” in the budget she unveiled earlier today. But a closer inspection of the budget shows us that the so-called flipping tax is merely a rebranding of an existing Canada Revenue Agency (CRA) rule.
“To ensure profits from flipping properties are taxed fully and fairly, Budget 2022 proposes to introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023,” says the budget 2022 document1.
While “any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income,” sounds like great news, it just isn’t new.
There are tax cases going back to at least 2004 where the CRA has deemed income from flipping as a business income2.
The CRA makes it abundantly clear that any income from flipping properties is considered business income3.
Buying to flip
In this scenario, a taxpayer buys a property, takes possession, and typically does some renovation. After the home is improved, the taxpayer sells the property and the gains (losses) form part of their income. The taxpayer may have lived in the property while making improvements. However, this does not entitle them to the principal residence exemption, because the intention was always to buy, improve and sell for profit. You must report any profit when buying to flip as business income.
It’s obvious, then, that Freeland’s “flipping tax” is nothing but a rebranding of the tax agency’s existing rules on treating flipping as a business income.
The Liberals promised a flipping tax after their star candidate Taleeb Noormohamed was exposed as a serial flipper. Just as with the loophole-laden ban on foreign buyers, which I shall discuss in another article, the “flipping tax” comes across as yet another attempt by the Liberals to appear to be fulfilling the party’s promises without actually doing so.
- Budget 2022
A Plan to Grow Our Economy and Make Life More Affordable
- Scopacasa v. The Queen, 2004 TCC 655 (CanLII), , retrieved on 2022-04-08
- Tax effects of buying real estate to sell for a profit