Selling a Home Within 365 Days in Ontario: The Flipping Rule

Life does not always let you stay in a home for a full year. A job ends, a relationship breaks down, a parent needs to move in, or the home simply stops being safe or workable. If you now have to sell a home you bought recently, one of your first questions is likely whether the profit will be taxed heavily.

Since 2023, a specific federal rule can change the answer for homes held for less than a year. This article explains how the flipping rule works, which exceptions exist, and what the tax treatment looks like if an exception applies. The details turn on your facts, so treat this as a guide to the right questions.

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 on it. That is a big difference from the usual result, where selling the home you live in is often tax-free.

A flipped property is a housing unit in Canada, not already inventory, that you owned for less than 365 consecutive days before it was sold. The rule applies to sales on or after January 1, 2023.

The rule looks at how long you owned the home, not why you bought it. A home you bought to live in can still be caught if you sell inside the 365-day period and no exception applies.

What happens to a loss

The rule works against you in both directions. A loss on the sale of a flipped property is deemed to be nil. In practical terms, you cannot count that loss against other income.

So if you sell a recently bought home and no exception applies, any profit is taxed as business income, and if you sell for less than you paid, the loss is deemed nil and gives you no tax relief.

The life-event exceptions

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

• 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.

Several of these terms have detailed definitions in the Income Tax Act, including what counts as an eligible relocation, who is a related person and what amounts to a serious illness. They are applied case by case. Whether your situation fits is a question to confirm with a lawyer or accountant, ideally before you list the home.

Note the words "in anticipation of." The exception can cover a sale made ahead of the event, not only after it. Keep records showing the timing and the reason for the sale.

The separation exception

There is a separate exception for relationship breakdown. The flipping 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.

The 90-day period matters. If you are separating and expect to sell, the date you began living separate and apart, and whether 90 days will have passed before closing, can affect which tax treatment applies. Writing down that date and keeping supporting records is a sensible step.

If an exception applies: how the sale is taxed

When an exception applies, the flipping rule does not apply, and the sale is generally treated under the ordinary rules instead. That means the usual capital gains and principal residence rules.

To use the exemption, you report the sale and the designation on Schedule 3 and complete Form T2091(IND). For 1982 and later years, a family can designate only one home as its principal residence for each year, but a spouse or common-law partner who lived apart from you throughout the year under a judicial separation or a written separation agreement is not part of your family unit for that limit. If the home was not your principal residence for every year you owned it, only part of the gain is exempt.

What to do next

• Confirm your exact purchase date and the expected closing date, and count the days of ownership.
• Write down the reason you must sell and when that reason arose.
• Gather proof: for example, a termination letter, medical records, separation date records or a relocation letter.
• If you are separating, record the date you began living separate and apart.
• Speak with a lawyer or accountant before you sign a listing or sale agreement, since the exception definitions are applied case by case.
• Keep your purchase and sale documents, and records of improvements and selling costs, for your return.

Frequently asked questions