On December 15, 2022, Bill C-32 received Royal Assent and became law. Bill C-32, which will take effect on January 1, 2023, includes a new federal Anti-Flipping Rule. The new Anti-Flipping Rule aims to address speculation in real estate transactions. Under the rule, if a property is sold for a profit after being held for less than 365 days, the profit will be treated as Business Income rather than Capital Gain. Business Income is subject to a higher tax rate than Capital Gain, with 100% of the Business Income being included in the current year’s taxable income compared to only 50% of the Capital Gain. Additionally, the principal residence exemption will not apply to the sale of a property held for less than 365 days, meaning that even if the property was used as a primary residence before the sale, the appreciation would be treated as Business Income.
There are some exceptions to the Anti-Flipping Rule if the transaction meets one of the following criteria:
- Death of the taxpayer or a relative of the taxpayer
- Addition of a new family member (newborn or adopted child, addition of an elderly person in need of care)
- Divorce/separation
- Personal and family member safety issues resulting from property ownership
- Illness or disability
- Moving for employment reasons
- Dismissal, unemployment
- Bankruptcy/insolvency
- Destruction or expropriation of property
The Canadian Revenue Agency (CRA) will also consider other factors when determining whether a property sale should be treated as Business Income or Capital Gain. These can include the owner’s intent at the time of purchase, the nature of the owner’s business or profession, the use of borrowed funds, the presence of other joint owners, the length of time the property was held, and the frequency of real estate transactions. Generally, the more relevant an individual’s business or occupation is to real estate, and the more frequently a property is bought and sold, the more likely the CRA will consider the sale proceeds as Business Income.
If you have any questions about the impact of the new Anti-Flipping Rule on your real estate transactions, or if you have had frequent real estate dealings recently, it is advisable to seek professional guidance to understand the tax implications and ensure compliance with the new regulations.