Canada’s New Anti-Flipping Rule
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- čas přidán 22. 08. 2024
- Do you know that CRA is implementing a new anti-flipping rule in 2023?
Starting from January 1st, 2023, onwards, when you make a profit from the sale of a property that you own for less than 365 days, that profit is deemed to be business income, and 100% of it is taxable!
In this video, I dive deep into this new anti-flipping rule and how it affects you using easy-to-understand examples. I also share the 12 criteria imposed by CRA to determine whether the sale of the property is considered business or capital in nature. Then, I walk through the steps to evaluate these transactions in a flow chart.
Key Moments In This Episode
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1:36 - What the anti-flipping rule means
2:01 - Example to explain the anti-flipping rule
3:19 - How does the new anti-flipping rule apply, and how is it different from the older rules?
5:17 - Criteria to determine if the transaction is capital in nature and 50% taxable
8:16 - 12 criteria imposed by CRA to determine whether the sale of the property is considered business or capital in nature
8:43 - Criteria #1: Taxpayers' intention
9:54 - Criteria #2: Feasibility of taxpayers' intention
10:36 - Criteria #3: Geographical location and zone use of the real estate required
11:35 - Criteria #4-5: Extent to which intention is carried out by the taxpayers; Evidence that the taxpayer’s intention changed after the purchase of real estate
12:26 - Criteria#6: Nature of the business, professional calling or trade of the taxpayer and associates
13:31 - Criteria #7: Extent to which borrowed money was used to finance the acquisition and terms of financing
14:45 - Criteria #8: Length of time of ownership
15:22 - Criteria #9: Existence of other partners who share an interest in the real estate
16:56 - Criteria10: Nature of occupation of other investors involved in the deal and course of conduct
17:29 - Criteria #11-12: Factors which motivated the sale of the property; Evidence that the taxpayer has dealt extensively in real estate
18:44 - The special rule that applies if you dispose of a residential property within 365 days and make a profit
20:16 - 9 exception criteria for anti-flipping rules
21:33 - The decision tree
26:09 - Goal of the anti-flipping rule
hannel for more videos on Canadian real estate and tax-saving strategies so you don’t miss a thing!
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Do you have any questions about flipping your property, or are you planning to sell a property in the upcoming years, and you're concerned about the new crazy rules explained in the video?
Visit our Website for a more detailed description of the rules: realestatetaxtips.ca/the-quickest-and-easiest-way-to-understand-anti-flipping-rule/
Let me know in the comments section, and I’ll take my time to respond to you individually.
If you still have questions or concerns about this new change after watching the video, feel free to reach out to our office; our team is more than happy to assist you.
Don’t forget to like and subscribe 😉
Thank you! Great video. If 100% of the profit is taxable, what classifies as profit? Renovation expenses should be deducted from the the profit. And interest from the borrowed money should also be deducted from the profit. If it is considered a business and is also your primary residence, should you pay yourself a salary which should also come out of the profit. If you were to buy a place for 450,000 and sell it for 550,000 is $100,000 considered profit? Or would the profit be $100,000 minus your reno cost, minus your borrowing cost, minus real estate commission, minus a wage you pay yourself =???
Thanks so much for the informative video Cherry! It was really helpful!!
Glad it was helpful!
Very useful information. Thank you
You are welcome
Closed Jan 2023, Selling Feb 2024, always rented out. Owned Privately (not in business/corporation name). Do I need to look into those 12 areas to determine whether it's business income or capital gain. Also, if it is capital gain, is it safe to list it on MLS before 365 days (closing still happens after 365 days)
Hi. We are in a bind with how we are using our property and cra wanting us to fill out a survey. Can you assist?
Such an informative video, thank you Cherry!
One question, if you buy a property and live in it for less than 365 days after closing, then rent it out to long term tenants, is that considered "flipping" for the pro-rated primary residence portion?
Thanks for the info
For example, I bought a house in the first month of the year and I renovated and I sold it in the fourth month for a profit. It was never my primary residence I had nothing to do with me living there. But whatever profit that came out of the deal, I invested in some other real estate venture within 30 days of the sale. My question is, do I have to claim that profit as income, doesn’t matter capital or personal, business, even if I invested the profit in some other property?
30 days rule were never applicable to Canadians.
Hello, great video. I had a question is a land which is mainly forrest, been bought and then sold
When you say the profit is "added to your income", assuming its a business transaction, do you mean the income for that business alone, or would it be added to all income streams, for instance if I work as a nurse, but have a side business in real estate, would profit from a flip be added to my nursing income and then taxed? Or would I only get taxed on the profit from the real-estate business?
It would be added to your T4 income and then taxed at that marginal rate of tax. If you are planning of doing this on a continuing basis I would recommend that you schedule a meeting with my team to explore your options that may help you lower your overall tax that is paid.
how is the taxes after 365?
Tricky question for me- I am self employed, bought a property October 2022, but have decided to move out of province this year (and want to sell June 2023). The property has been upgraded significantly since I purchased it, and will certainly make profit because of that fact. If I sell and move, will I be forced to pay tax? I don't specifically "need" to move for my job, although moving will open up more opportunities.
It goes back to how strong your documentation is and the opportunity you had else where. Feel free to reach out to your professional accountant to ask for his/her opinion. If you don't have one, our team is always here to help.
Hello, thank you for your excellent explanation. Could you please let me know if the capital gain or profit from flipping is divided between a couple that have joint tenancy on a deed.
Thank you.
This is a bigger question beyond the legal form of your ownership. It goes back to who actually puts in the money for investment. If you already work with an accountant, please consult your accountant that knows your situation better. If you don't currently work with one, feel free to connect with my office and my team is happy to discuss your situation with you. Feel free to reach out at 416-548-4228 or email us at admin@cccpa.ca
Hi Cherry. Great video and lots of detail. I am due to move into my new-build property next month and I am uncertain about when/if/how we can sell the property as the mortgage may be unsustainable. If I was to sell the property within 1 year, and move to another province. Would profit (if any) be taxable at all? How do I contact you? Thanks. And great work.
Hi! You can reach my team at realestatetaxtips.ca/contact-us/ and we can guide you with what you need. Thanks
I have one Q. If on a pre construction flip, do we have pay hst since it is considered business income? No renovation added to property?
You would be considered a Builder by CRA and have to pay HST on the difference between the contract price and the final sale price
Okay so- clarifying - if you live in it, for more than 365, then you’re not taxed?
If you live in the property, and it is over 365 days, you would still go through the 12 criteria analysis that I mentioned in the video. Assuming you meet the criteria that you are using the property as your primary residence, then chances are, you won't be taxed on the sale of property. But again, meeting the 12 criteria is the key.
So is it legal to flip properties as a career as long as you pay the correct amount of taxes?
100%. There are ways to set it up to minimize taxes and preserve working capital and I recommend you schedule a meeting with my team to explore your options if this is the direction you want to proceed.
Hi, gr8 video. If you closed the property last year in Nov and sell it in 2023 before Nov, are you 100% taxed as business income, even though you acquired property last year before the new rules came in to effect. Thx
It's based on closing date.
What about pre-construction property for primarily residence initially but it took too long and I purchased something else for me to live. This pre obstruction will be on sale as an assignment shortly. Is it capital gain? Or business transaction?
Assignment sale is also subject to the same rule. If you've owned the assignment < 365 days, and you aren't one of the exclusions, then profit is 100% taxable and subject to HST. If you've owned the assignment > 365 days, then there're 12 criteria that they look at as mentioned in the video. However, if the assignment sale happens after May 6, 2022, you're still liable for HST on assignment. Tax impact on assignment fee net of HST is determined based on the 12 criteria.
@@RealEstateTaxTips perfect. Thank you. Yes , I have owned assignment for 3 years… also Thank you for explaining for HST
Hello, I changed use from rental to principal after 6 months and then sold the property after living in it for 7 months, I took a loss from the first change and then a gain, the first change and second change would fall under the flip tax since its less than a year? I did actuslly keep the property for 13 months so a bit confused
Definitely very confusing. Please schedule a call with us or talk to a professional accountant to get the proper advice.
Great video! If sold in less than 365 days, I assume hst would apply to this business income. Would the seller be responsible for collecting hst from the buyer? If the buyer is to pay hst, this may affect their buying choice I guess
It should not have HST if it is residential resale home. If it is new home, or substantially renovated homes, or short-term rental, that could be a different story.
@@RealEstateTaxTips Thank you Cherry!
Does the Occupancy period count as part of the 365 days?
No unfortunately
Are you taking on new clients ? I am a new investor/flipper and looking for someone who specializes in real estate accounting.
Great info !!
Hi Zubair, we're always looking for new clients. Feel free to reach out to my office at 416-548-4228 or email us at admin(@)cccpa.ca
I am in Vancouver take clients in Vancouver .
Thank you I am glad I found your videos . Very educational
thank you for the very detailed video, I have a quite unique scenario and I am wondering if you can help to clarify my concern. I bought a one bedroom pre-con back in 2018 (I was single and was planning to live in it myself), this year 2023 this condo will be closing, but now i am married and have a kid. Apparently this condo is not suitable for a family of size 3. Will I be exempted from the business income tax if I sell it right after closing or less than 365 days? Also do I have to pay back the HST rebate? Appreciate your answers
Yes you should be exempt on the business tax due to your unique situation. Provided you are not assigning the property you should be able to still claim the rebate based upon your original intention, this would need to be confirmed with the GST/HST Technical Rulings Unit.
@@RealEstateTaxTips thanks, really appreciate your response.
Hi if you have a rental property that have been rented for 3 years and then have build a new house on it and when completed and have to sell in 2023 . What will it be cap gain or treated as income . Or have an appraisal done before building and consider the appreciation as capital gain amd the test as income or can I consider as all capital gain . Thank you
No, if you claim CCA on your principal residence you lose the tax free capital gains exemption
Hi
I have got a question.
I have 2property. One is my principal residence.2nd one. Rented for 3months in year 2022. I didn't rent rest of the year because I am using that property facilities like swimming pool,gim daily . Since I have only 3months rent to disclose as rental in come ,should there be any questions raised by CRA as why it was not rented. How to deal with it? Any suggestions.
If you keep the property for personal use, and receive rental income for only 3 months, you can deduct only 3 months of expenses.
Hi! i bought a property in my name last year. on title its just my name but had partners. Trust reconciliation from lawyer shows how funds were dispersed when i sold it after i closed on it and later flipped it same year. basically double closed
Would i be liable for the entire sale price/gains or just portions i received? this was my taxes for year 2022 btw
Thank you
By the sounds of it you had some sort of written agreement for the lawyer to proceed with the distribution. That being said you should only be paying taxes on the portion of income from the property that you received. Note this would not be considered as Capital Gains.
Very informative video! Thanks Cherry.
Question.
We have a pre construction condo bought back in 2016 and it got delayed multiple times for so long (occupancy later this year).
Now that we have 2 children born since 2016, the condo is now too small for our family.
Do you think we can be exempt from anti flipping tax rule if we sell it or rent it out after living there only for a couple weeks/months?
What about home buyer's plans? Will we be able to use HBP, and use RRSP saved even if we sell or rent it out after living there only for a couple week/months?
If you sell it within 365 days after closing, you would still be subject to the same tax, unless you meet one of the exceptions.
If you move into the property for a couple of weeks/months, you are not really using the property as your primary residence, hard to argue that the profit you make isn't taxable. You would at least have some sort of capital gain tax exposure.
Make sure you consult with someone who knows the rules, and if you don't have someone to consult with, feel free to schedule a call with our team at 416-548-4228.
Thanks for the answer.
Doesn't my situation fit into one of the exception?
Addition to the household (2016: 2 members, 2018-now: 4 members)
@@DavidHan007 I think it does fit in exception criteria provided you are renting now and do not have a Primary residence. If you do own another property now coz your family expanded or coz of delays, waiting 365 days sounds about right. Feel free to consult a professional. I have a similar situation and that is my plan 😊
@@MM-hw6fz thanks alot for the info! Yes we are renting and this condo would be our first home. Do you happen to have professional you are working with? If so and if u r ok, please share the contact with me. Thanks!
@@DavidHan007 We are not using one currently but I can talk to my friends for u, whereabouts are u located ? Toronto ?
Hi Cherry, thank you for breaking this down! Honestly really hard to wrap my head around this…
What if person A owns a rental property for 6 years and have always reported their rental income and on year 6 (2023), person A decides to demolish and build a new residence, hoping to sell it soon after.
Will the “newly built residence” fall under “the less than 365 days” rule and business income applies even though person A owns the property for 6 years?
This is definitely a complicated situation - feel free to reach out to our office at 416-548-4228 or contact us via email at admin@cccpa.ca to schedule a proper consultation.
I see one of the exclusions is if you add to your family. Example, birth of a child. How does this rule look? What is the criteria for being exclude if your family just had another baby?
I have been given a property as a gift. When i sell it. What category do i feel in?
If you sell immediately within 365 days, you're still caught under this new anti-flipping rules unless you meet one of the exemption.
Hi Cherry, great video! I bought a pre condo back in 2020 as primarily residence and it is now closing in Dec 2023, but I got a job in US and will be staying there for 1-2 years, I'm thinking to assign the unit with same price as I bought to my parent before it's closing, will I be exempted from the business income/capital gain tax ? and will I be qualified as first time home buyer if I purchase a home in future when I come back, thanks
It sounds like you have a very specific scenario. It's best to sit down with our team to go through your situation so you can have the best course of action moving forward. You're welcome to reach out to our team, if you don't already have an accountant you work with regularly.
Generally speaking you would have HST implication on sale of assignment and transactions between related parties are deemed to happen at fair market value...not at cost.
Good luck!
Hi cherry thanks for the video can HST Paid be tax deductible on income ?
Let's say pre construction purchased as investment . Paid 24 k hst on closing. Sold the property within 365 days and profit of 200k. Now this will be business income right 100 percent taxable however can we deduct tax deduction for the hst paid I.e 24000 to reduce taxes . I know real estate commissions and money spent on house purchase etc are tax deductible but can hst Paid be also tax deductible to reduce taxes?
Yes, the cost of acquiring the property would be inclusive of the HST that you paid.
However, I typically tell my clients to claim the HST of $24K back via New Residential Rental Rebate. Hopefully you did get a chance to claim it back (but you do need to own the property for more than a year as well...)
@@RealEstateTaxTips hi cherry I owned it for less than a year however I paid HST when closing . Did not claim it back as I sold it after about 7 months. So I can claim hst as an expense like we use realtors fees etc for tax deduction when filing taxes . Thanks Cherry
Common sense rule for all short term investments which means speculation.
53.5% how
Highest Ontario Marginal Tax Rates on personal income tax is 53.5%
Just another reason to leave canada and wholesale in the United States
Where that amazing country is pro business
I think these rules have been applied to the US for a very long time. The 365 days rule I mean...
@@RealEstateTaxTips
No, some states enacted legislation, forcing wholesalers to become licensed if they want to continue wholesaling properties
All because real estate agents were upset, that they were losing their income, because wholesalers were doing a better job of getting properties under contract, and wholesaling them
So the real estate association demanded that certain state level legislators enact new legislation, making illegal for wholesalers to wholesale properties, without being licensed
Which is absolute BS
Real estate agents are nothing more than petulant children, who were losing ground to wholesalers, and they didn't like that
So they had to have their big brother step in, and try to slow down the successful wholesalers in certain states