House Flipping Tax in Ontario and the Federal Flipping Rule

If you bought an Ontario home and sold it within a year, the way the profit is taxed may be very different from a normal home sale. A federal rule now treats many quick sales as business income.

This article explains what the rule covers, what it takes away, and the exceptions. The details can turn on the facts, so a lawyer or accountant can confirm how it applies to you.

What the flipping rule says

Under the residential property flipping rule, profit on a flipped property is deemed to be business income, and the principal residence exemption is not available. A flipped property is a housing unit in Canada (not already inventory) owned for less than 365 consecutive days before it is sold. The rule applies to sales on or after January 1, 2023.

A loss on the sale of a flipped property is deemed to be nil.

Why it matters

Normally, if a home was solely your principal residence for every year you owned it, you usually pay no tax on the gain. For capital gains, only half is taxable for 2025. For a flipped property, the profit is instead deemed to be business income, and the principal residence exemption is not available.

How a normal home sale is taxed

To see what the flipping rule takes away, it helps to know the usual approach. A capital gain is the proceeds of disposition minus the property's adjusted cost base and any outlays and expenses of selling it. You report capital gains and losses on Schedule 3, and the taxable capital gain on line 12700.

A property qualifies as your principal residence for a year only if it meets all of these conditions:

• It is a housing unit, or a leasehold interest in one.
• You own it alone or jointly.
• You, or certain family members, lived in it at some time during the year.
• You designate it as your principal residence.

A house, cottage, condominium, apartment, trailer, mobile home or houseboat can all be a principal residence. For 1982 and later years, a family can designate only one home as its principal residence for each year. A spouse or common-law partner is not part of your family unit for that limit if, throughout the year, they lived apart from you and were separated under a judicial separation or a written separation agreement.

If the home was not your principal residence for every year you owned it, only part of the gain is exempt. The exempt part is the gain × (designated years + 1) ÷ years owned. The CRA's example is $50,000 × (8 ÷ 10) = $40,000 exempt.

Exceptions to the flipping rule

The rule does not apply if the sale is due to, or made in anticipation of, any of these:

• Death of the taxpayer or a related person.
• A related person joining your household or you joining theirs.
• A serious disability or illness.
• Involuntary termination of employment.
• An eligible relocation.
• Insolvency.
• Destruction or expropriation of the property.
• A threat to personal safety.

The rule also does not apply if the sale is due to the breakdown of your marriage or common-law partnership and you have lived separate and apart from your spouse or common-law partner for at least 90 days before the sale.

Some of these exceptions have detailed definitions in the Income Tax Act, such as eligible relocation, so they are applied case by case.

If the rule does not apply

Not every quick sale is caught. If you owned the home for 365 days or more, the flipping rule does not apply. Your gain is then worked out under the usual rules, including the principal residence exemption if the home qualifies and you designate it. When you sell your principal residence, you report the sale and designation on Schedule 3 and complete Form T2091(IND). An executor or other legal representative of a deceased person uses Form T1255 instead.

If you did not make the designation on time, the CRA will accept a late principal residence designation in certain circumstances, but a penalty may apply. Whether a penalty applies and how much it would be depends on your situation, so it is worth confirming with a lawyer or accountant.

If you rented out part of the home, you split the selling price and adjusted cost base between the two uses on a reasonable basis, such as square metres or number of rooms. The CRA generally keeps full principal residence treatment where the rental use is ancillary to the home's main use as a residence, there is no structural change, and no CCA is claimed. Whether that fits your situation depends on the facts, so it is worth confirming with an accountant.

What to do next

• Count the days between your closing date of purchase and your sale date.
• Write down why you sold, and keep documents that support any life-event reason.
• Gather purchase and sale statements and renovation receipts.
• Keep records of any rent you received and of who lived in the home and when.
• Speak with a lawyer or accountant before filing, as the treatment of a flip affects how you report the sale.

Frequently asked questions