- A housing unit in Canada owned for less than 365 consecutive days before it is sold can be a flipped property, and the profit is treated as business income.
- The principal residence exemption is not available on a flipped property, and a loss on it is deemed to be nil.
- Sales caused by certain life events, or by a marriage or common-law breakdown, can fall outside the rule.
If you bought a home and sold it quickly, you may expect the principal residence exemption to wipe out the tax. Since the federal flipping rule came in, that is not always true.
This article explains the rule in plain terms, what it changes about your tax, and the exceptions that may apply. Your own facts decide the result, so a lawyer or accountant should confirm how it applies to you.
What the flipping rule says
Under the residential property flipping rule, a flipped property is a housing unit in Canada, not already inventory, that you owned for less than 365 consecutive days before you sold it.
The rule applies to sales on or after January 1, 2023. It is a federal tax rule, so it applies to Ontario homes the same way it applies elsewhere in Canada.
What changes if the rule applies
The profit on a flipped property is deemed to be business income, and the principal residence exemption is not available. You cannot avoid the rule by designating the home as your principal residence.
The rule does not work in your favour on a loss. A loss on the sale of a flipped property is deemed to be nil.
- Profit is treated as business income rather than a capital gain.
- The principal residence exemption cannot be used.
- A loss is treated as nil, so it cannot be used against other income.
How a normal sale is taxed by comparison
A capital gain is the proceeds of disposition minus the property's adjusted cost base and any outlays and expenses of selling it. For 2025, half of a capital gain is taxable. Check the current year's rate before relying on it for a later sale.
If the home was solely your principal residence for every year you owned it, you usually pay no tax on the gain because of the principal residence exemption. A flipped property loses that protection, which is why the 365-day line matters.
On a sale that is not caught by the flipping rule, you report the sale and the designation on Schedule 3 and complete Form T2091(IND).
Exceptions to the rule
The flipping rule does not apply if the sale is due to, or made in anticipation of, one of these events:
- The death of you 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.
There is also an exception for separation. The rule 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.
Several of these events have detailed legal definitions, such as what counts as an eligible relocation. Whether your situation fits is a question of facts, so get advice before assuming it does.
What to do next
- Find your purchase and sale dates and count the days you owned the home.
- Write down why you sold, and keep any documents that show the reason.
- Collect your purchase cost, selling costs and any renovation records.
- Ask a lawyer or accountant whether an exception applies before you file.
- Do not claim the principal residence exemption on a flipped property without confirming advice.
Frequently asked questions
Does the flipping rule apply if I lived in the home?
Living in the home does not by itself take it outside the rule. The principal residence exemption is not available on a flipped property. The exceptions depend on why you sold, not only on where you lived.
What if I sold at a loss within a year?
A loss on the sale of a flipped property is deemed to be nil. Whether an exception applies to your sale is worth confirming with a tax professional.
Does a divorce or separation help?
It can. The rule 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 for at least 90 days before the sale.
Is the rule only for new builds?
No. It covers a housing unit in Canada that is not already inventory and that you owned for less than 365 consecutive days before selling.
Sources
- CRA – Principal residence — canada.ca
- CRA Guide T4037, Capital Gains — canada.ca
- CRA – Residential Property Flipping Rule — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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