Anti-Flipping Rules: Is a Home Sold Within a Year Exempt in Canada?

You bought a home and sold it within a year. Perhaps your job moved, your family changed or the home no longer worked. You may assume the principal residence exemption covers you, but a rule aimed at flipping can change the result.

This article explains how the flipping rule works, what it does to the exemption and which exceptions exist. Facts decide these cases, so a lawyer or accountant should confirm how the rule applies to you.

This article covers Canadian federal tax law, which applies in every province.

What the flipping rule says

A gain on a flipped property is deemed business income. A flipped property is a housing unit in Canada, or a right to acquire one, owned or held less than 365 consecutive days before disposition. The property is deemed inventory and not capital property, so the principal residence exemption does not apply.

The rule applies to dispositions after 2022.

In plain words, the length of time you held the property is the starting test. If you held it for fewer than 365 consecutive days before the sale, the rule may apply, and the reason for the sale then becomes important because of the exceptions listed below.

Does it override the exemption?

Yes, unless an exception applies. Because the property is treated as inventory rather than capital property, a flipped property that would otherwise qualify as a principal residence can result in business income. Business income is generally taxed differently from a capital gain, where only half is taxable.

On the other side, a business loss on a flipped property is deemed to be nil. Property that is already inventory of the taxpayer is outside the flipped-property definition.

The exceptions

The rule does not apply to a disposition that can reasonably be considered to occur due to, or in anticipation of, any of the following:

• Death of the taxpayer or a related person.
• A related person joining the household.
• Breakdown of a marriage or common-law partnership, with the couple separated at least 90 days.
• A threat to personal safety.
• Serious disability or illness.
• An eligible relocation.
• Involuntary termination of employment.
• Insolvency.
• Destruction or expropriation of the property.

Whether your situation fits depends on the facts and on evidence, so keep records of what happened and when.

If the exceptions do not apply

If no exception applies, the gain is deemed business income and the property is deemed inventory rather than capital property, so the principal residence exemption does not apply. If the exemption is available, you designate the property and the gain is calculated on Form T2091(IND).

The plus-one year in the formula can help when you sell one home and buy another in the same year. However, if the rule treats the sale as business income, that designation does not remove the business income treatment.

When the flipping rule does not apply, the usual principal residence conditions still matter. The property must be a housing unit you own, alone or jointly, and it must be ordinarily inhabited in the year by you or a spouse, common-law partner, former spouse or partner, or child. Whether a unit is ordinarily inhabited is a question of fact. Only one property per family unit can be designated for each year.

What to do next

• Confirm the exact dates you acquired the property and disposed of it, and count whether it was 365 consecutive days.
• Gather documents showing why you sold, such as a job letter, separation date, medical records or insurance papers.
• Compare the reason with the exceptions list.
• Keep records of the purchase price, expenses and selling costs.
• Speak with a lawyer or accountant before filing if the sale was close to the 365-day line.

If you forgot to designate the home in the year of sale, you can ask CRA to amend the return for that year. CRA may accept a late designation in certain circumstances, and a penalty may apply. How the flipping rule and any late filing steps apply to you depends on your situation, so it is worth confirming with a lawyer or accountant.

Frequently asked questions