Selling a Home Held Less Than a Year: Is the Gain Taxable in Canada?

Selling a home soon after buying it can happen for good reasons: a job change, a family emergency or a relationship ending. For tax purposes, though, a quick sale can be treated very differently from a sale after years of living there.

This article explains the flipping rule, the situations where it does not apply, and what to review before you file. Each case turns on its facts, so a lawyer or accountant can confirm how it applies to you.

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

The usual rule for a home sale

Normally, a gain on your principal residence can be sheltered by the exemption if you report and designate the home. The sale must be reported on Schedule 3 of your T1 return, even if the whole gain is exempt. Where a gain is taxable, half of the capital gain is taxable.

Individuals designate the property and calculate any gain on Form T2091(IND). On Schedule 3, the designation is made in Part 1 by ticking box 1 at line 17900 if the home was the principal residence for all years owned, or all but one, or box 3 at line 17900 if it was not the residence for every year owned.

The capital gain is the proceeds of disposition minus the adjusted cost base and the outlays and expenses of the sale, such as legal fees, transfer taxes and advertising. The adjusted cost base is generally the cost plus acquisition expenses such as commissions and legal fees, plus capital expenditures such as additions and improvements, but not current expenses such as maintenance and repairs.

The flipping rule

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

The rule applies to dispositions after 2022. A business loss on a flipped property is deemed to be nil. Property that was already inventory of the taxpayer is outside the flipped-property definition.

Life events that are excepted

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

• The death of you or a related person.
• A related person joining your household.
• The breakdown of a marriage or common-law partnership, where you have been separated at least 90 days.
• A threat to your personal safety.
• A serious disability or illness.
• An eligible relocation.
• Involuntary termination of employment.
• Insolvency.
• Destruction or expropriation of the property.

Whether your reason fits one of these is a question of facts and timing, so keep records that show why you sold.

If the rule does not apply

If the flipping rule does not apply, the usual principal residence rules decide the outcome. The home must be ordinarily inhabited in the year by you or certain family members, and even a short period of occupation can be enough, but where the main reason for owning is to earn income a brief occupancy generally will not qualify.

When a home is sold and another is bought in the same year, both are treated as principal residences for that year under the "one plus" rule. Only one property per family unit can be designated as a principal residence for each year from 1982 onward, so a designation for one home affects what you can designate for another.

A home is personal-use property, so if you have a loss on sale you cannot claim it.

What to do next

• Confirm the exact purchase and sale dates and count the days you held the property.
• Check whether you held it fewer than 365 consecutive days, since the flipping rule may then treat the gain as business income.
• Write down why you sold and gather documents that support it, such as medical, employment or separation records.
• Collect purchase costs, improvement records and selling costs.
• If the flipping rule does not apply, report the sale on Schedule 3 and designate the home if it qualifies.
• Ask a lawyer or accountant to review your facts before you file.

Frequently asked questions