Selling Your Ontario Home Within a Year: The Flipping Tax Rule

Sometimes a home has to be sold sooner than planned. A job ends, a relationship changes, a family member needs care, or the home simply stops working for you. If you have owned the property for less than a year, there is a federal tax rule you should know about before you sign a sale agreement.

The rule is called the residential property flipping rule. It can change how your profit is taxed and can take away the principal residence exemption. This article explains how it works, the exceptions, and what to do if your situation may fit one of them.

What the flipping rule says

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.

If the rule applies, the profit is deemed to be business income, and the principal residence exemption is not available. That is true even if you lived in the home the whole time. Counting the days carefully matters, so confirm your ownership dates with your lawyer or accountant.

Flipping treatment versus normal capital gains

Ordinarily, a capital gain is the proceeds of disposition minus the property's adjusted cost base (ACB) and any outlays and expenses of selling it. You report it on Schedule 3, and the taxable capital gain goes on line 12700. For 2025, the inclusion rate is 50%, so half of the gain is taxable. If the home was your principal residence for every year you owned it, you usually pay no tax on the gain.

The gap can be large. A gain that might have been fully exempt, or only half taxable, can instead be taxed as business income. Because the loss is deemed nil, a bad sale gives you no tax relief either.

Life events that take a sale outside the rule

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 your employment.
• An eligible relocation.
• Insolvency.
• Destruction or expropriation of the property.
• A threat to your personal safety.

Terms such as "eligible relocation" and "related person" have detailed definitions in the Income Tax Act. Whether your facts fit has to be worked out case by case, so it is worth getting advice before you rely on an exception.

Separation and relationship breakdown

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

That 90-day condition is part of this exception only. If you are separating and thinking of listing a recently bought home, the timing of the sale compared with the date you started living apart is something to raise with a lawyer or accountant.

What to do next

• Count the days between your closing date and the expected sale date, and see whether it is under 365 consecutive days.
• Write down why you are selling and when that reason arose, since the exceptions cover sales made in anticipation of the event too.
• Gather your purchase documents, selling costs and any records of the event, such as a termination letter, medical records or separation dates.
• Check the current year's inclusion rate before estimating tax, because the 50% figure is the 2025 rate.
• Ask a lawyer or accountant whether an exception fits before you accept an offer, especially if closing could fall near the 365-day mark.

A short conversation before listing is usually far easier than fixing a tax result after the sale closes.

Frequently asked questions