What is the new residential property flipping rule and how does it turn a home sale into business income?

The residential property flipping rule is a federal Income Tax Act rule that applies to residential properties sold in 2023 and later. Where a "flipped property," one held for a short period, generally under about a year, is sold, any gain is deemed to be fully taxable business income rather than a capital gain, and this happens automatically based on how long you owned it, regardless of what your actual intention was when you bought it.

This is a significant shift from how gains were traditionally analyzed, where intention and other facts mattered a great deal. Under this rule, the short holding period itself is enough to trigger business income treatment, unless one of a specific set of life-event exceptions applies, covered in a related question. Because the gain is deemed to be business income, it's also fully taxable rather than getting the partial inclusion that normally applies to a capital gain, and the principal residence exemption is not available for that sale at all, even if you genuinely lived in the home the whole time you owned it. Given how automatic and unforgiving this rule is, it's worth checking it carefully before selling any residential property owned for a short period.