What is the Anti Flipping Tax in Canada?

What is the Anti Flipping Tax in Canada?
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Published By Jennifer Jewell

Question: What is the Anti Flipping Tax in Canada?
Answer: The Anti Flipping Tax, known as the “Residential Property Flipping Rule,” states that the earnings generated from property flipping are considered fully taxable as business income and are not eligible for the 50-percent capital gains inclusion rate or the Principal Residence Exemption.

What is the Anti Flipping Tax in Canada? The Evolution of Canada’s Real Estate Landscape

Canada has taken a significant step towards curbing rapid profit-making in the residential real estate sector with the introduction of the anti-flipping tax. This regulation, effective January 1, 2023, is aimed at ensuring that gains from property flipping are not sheltered but subject to full taxation. The primary objective of this tax is to discourage real estate flipping as a means of fast profit generation.

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This tax, applied to profits from properties sold within 365 days of purchase, could lead to investors facing a considerably higher tax burden if they sell their properties too hastily. The tax also targets speculative practices in the housing market, such as house flipping, which contribute to inflated property prices and reduced affordability for potential homeowners.

The tax is also applicable to assignment sales for newly constructed or substantially renovated single-unit residential properties. By imposing tax on quick profits from real estate buy-and-resell transactions, the government aims to bolster the availability of affordable homes for Canadians.

Moreover, this tax measure is estimated to raise up to $3 billion over the next three years, which can be directed towards initiatives like enhancing access to rental markets or providing support for low-income households. This could offer much-needed respite for those battling to secure affordable housing in an increasingly costly market. [ 1 ]

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Understanding Canada’s New Anti-Flipping Rules

Coming into effect in 2023, the Canadian Revenue Agency (CRA) has introduced an anti-flipping rule that impacts investors and homeowners across the nation. This regulation applies to sales of residential property held for less than a year, with any gains from such transactions being taxable as business income rather than capital gains.

Notably, this rule is not applicable to all real estate transactions. It only applies to properties sold within 12 months of purchase and not to properties held for more than 12 months or purchased before January 1, 2023. The rule aims to address speculation in real estate transactions and deter individuals from buying and selling properties purely for profit.

Decoding Exceptions to the New Anti-Flipping Rules

While the new residential property flipping rule, announced in the 2022 federal budget, mandates full taxation on profits from flipping properties, there are certain exceptions.

Individuals experiencing particular life events, who sell their residential property within 12 months, may be exempt from the new anti-flipping measure. These exemptions include events such as the death of the individual or a related party, an addition to a household, or a change in the use of the property.

Understanding the Primary Residence Exemption

The primary residence exemption is a tax credit provided by the CRA for Canadians who sell their principal residence. This exemption allows them to bypass taxes on profits, as long as they have resided in the home as their primary residence for at least 4 of the last 5 years.

This exemption can significantly mitigate capital gains taxes, thereby offering valuable savings when selling your home. However, it is only applicable to one property per family unit and does not apply to investment properties or income-generating properties like rental units.

In scenarios where the homeowner could not reside in the house due to uncontrollable circumstances (like a job transfer or military service), they might still qualify for a partial exemption based on the duration of their stay in the property prior to its sale. Furthermore, special rules may apply if there is a change in the use of the property after purchase but before the sale (for example, converting a personal residence into a rental unit).

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Understanding the workings of the primary residence exemption can offer significant financial benefits when selling your home. To ensure you fully leverage this tax credit, it is advisable to consult a tax professional who can provide detailed insights into all aspects of this tax credit and discuss strategies concerning its application in your specific circumstance.


1. https://www.mnp.ca/en/insights/directory/what-residential-property-owners-need-know-canadas-new-anti-flipping-rules

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