How To Know If You Flipped A House in Canada
Canadian tax law leaves some room for interpretation about what is a house flip. During an audit decisions are made on a case by case basis about what constitutes flipping.
That said, the major indicators of house flipping are:
- property was purchased to make a profit, not to live in as a primary residence, and
- the property was resold in less than 12 months.
Selling more than one property in a year without living in them almost guarantees you will be viewed as a house flipper.
How To Avoid Being Labeled a Flipper & Qualify for Tax Free Capital Gains from A Primary Residence
People can choose to arrange their lives to try to limit their tax implications on property resale. To avoid the flippers tax you may:
- live in the property as your primary residence for the entire time you own it
- own no other properties
- own the property for more than 12 months
Other Exemptions To The House Flip Tax
There are some exemptions to the house flip tax due to “life circumstances”. These exemptions create legitimate reasons why people may dispose of a property after less than 12 months. Some of the situations in which the new rules do not apply are:
- Death – should a taxpayer die after December 31, 2022 having owned the property for less than 12 months
- Household Growth – should the taxpayer’s household grow in size as a result of a related person joining the family
- Separation or Divorce – should the taxpayer be required to sell property as a result of a breakdown of a relationship
- Employment Change – should the taxpayer be required to sell the property because of a change in employment (termination or relocation of more than 40km)
If one of the above exemptions may apply to you, the CRA still may evaluate your claims and dispute them. It would then still be a question of fact whether the profits earned on the sale of property are taxed as business income or not.
What Happens If I am a House Flipper in Thunder Bay?
Before doing any tax or business planning you should consult both a tax and a legal professional about your specific circumstances. Your professional will let you know how best to help you qualify for the lowest possible tax consequences for selling your property.
In previous years the government cracked down on dishonest tax returns and made speculators into flippers who pay taxes. Now they are widening the net, and catching more people in their tax increases in an effort to reduce housing costs in Canada.
If you flip a house in less than 12 months watch out, because you may just be paying more taxes than you expect next year.
For assistance planning for your next house sale, please call Larson Lawyers now at 1-807-285-7777.