Flipping a House in Canada: Capital Gain or Business Income?

If you bought a house, condo or other housing unit and resold it quickly, the tax treatment can change a lot depending on how the CRA characterizes the sale. Capital gains are only partly taxable, while business income is not.

This article explains the 365-day flipping rule, the general test for business income versus capital gain, and how to report either result. Your facts decide the outcome, so a lawyer or accountant can confirm your position.

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

Why the label matters

Only half of a capital gain is taxable. Business profit, by contrast, is fully included in income, as the CRA explains when comparing business income and capital gains for crypto-assets.

A taxable capital gain is added to your other income on line 12700 and taxed at your marginal rates. The classification therefore changes how much of the profit is taxed.

The 365-day flipping rule

A gain on a Canadian housing unit owned for less than 365 consecutive days is deemed to be business income and is not a capital gain. It is reported in Part 1 of Schedule 3.

The rule turns on how long you owned the property, and how it applies to your situation is worth confirming with a lawyer or accountant. It applies to Canadian housing units, not to other assets such as crypto or securities.

There is an exception. The rule does not apply where the sale is due to a qualifying life event, such as death, relationship breakdown (at least 90 days of separation), serious illness or involuntary job termination.

If you held the property longer than 365 days

Passing the 365-day mark does not automatically make the gain a capital gain. The CRA's audit manual says the distinction is whether the taxpayer is trading or investing.

A short holding period alone is not conclusive and must be viewed with all the facts. A secondary intention to resell at a profit is almost always present, and if it is carried out the gain is usually business income.

For crypto-assets, the CRA lists factors pointing to a business, including frequency of transactions, short holding periods, market knowledge, time spent studying markets, debt financing and advertising. Those factors are about crypto, but they show the kind of facts the CRA weighs. For real estate, how the facts fit your case is a question to confirm with an advisor.

If the result is a capital gain: how the numbers work

To calculate a gain, you subtract the property's ACB and the outlays and expenses of selling from the proceeds of disposition. The CRA gives an example where 400 shares sold for $6,500 with a $60 commission and a $4,000 ACB give a gain of $2,440, of which half ($1,220) is the taxable capital gain reported on line 12700.

The one-half inclusion rate applies to gains realized in 2024, 2025 and 2026, because the proposed increase to two-thirds was cancelled. Rules can change with future budgets, so it is worth confirming the current rate before you file.

• Schedule 3, Part 3 lists proceeds of disposition (column 2), ACB (column 3), outlays and expenses (column 4) and the gain or loss (column 5).
• A positive result goes to line 12700, and a negative result (net capital loss) does not.
• If you sold in a foreign currency, report in Canadian dollars, converting proceeds at the rate when you sold, the ACB at the rate when you acquired the property, and outlays at the rate when they were incurred.

Principal residence and reporting

If you sold, or are considered to have sold, your principal residence or part of it, include Form T2091(IND) with your return and report the sale on Schedule 3. Since 2016 the exemption is allowed only if the disposition and designation are reported on the return, and a late designation may attract a penalty.

• Report the sale in the calendar year it occurs, and file even if no tax is owing.
• Calculate the gain from proceeds, ACB and selling costs.
• Add purchase costs such as commissions and legal fees to the ACB, but not maintenance and repairs.
• Report a capital result in Schedule 3, Part 3, and a flipped-property result in Part 1.

What to do next

• Write down the purchase and sale dates and count the days you owned the property.
• If you owned it under 365 days, note whether a qualifying life event applies and gather proof.
• Collect closing statements, legal and agent invoices, and receipts for costs.
• Record why you bought the property and what you planned to do with it.
• Speak with an accountant or lawyer before filing if the classification is unclear.

Frequently asked questions