Taxpayer who flipped a property eight years ago gets a CRA call
To discourage speculation in the housing market, the 2022 federal budget introduced anti-flipping rules for residential real estate (including rental properties) that came into effect Jan. 1, 2023, and were designed to “reduce speculative demand in the marketplace and help to cool excessive price growth.”
The rules prevent you from claiming the principal residence exemption to shelter the capital gain realized on the sale of your home if you’ve owned it for less than 12 months, and they tax the gain on the sale of any residential real estate as 100 per cent taxable business income, subject to certain exemptions for life events such as death, disability, separation and work relocation.
Although the rules only came into play for 2023 and future years, the Canada Revenue Agency can still challenge real estate “flips” that took place prior to 2023 if it feels a taxpayer has speculated and flipped a property for a quick profit.
Take the case decided last month that involved an Alberta taxpayer who was reassessed for his 2016 taxation year for failing to report the profit he made on the disposition of a property in Calgary.
In 2016, the taxpayer was a real estate associate who was involved in various property transactions. One of the properties he owned was a two-bedroom, one-bathroom bungalow with a detached two-car garage, which the taxpayer held from Oct. 20, 2016, to Nov. 21, 2016 — a period of 33 days. During this time, the taxpayer never listed the property for rent and he ended up selling the property for a gain of nearly $73,000, which he did not report on his 2016 personal tax return.
Because the CRA only reassessed the taxpayer for the unreported 2016 sale in 2021, the first issue before the Tax Court was whether the
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