The residential property flipping rule

What does the rule change?

Normally only 50% of a capital gain is taxable. Where the flipping rule applies, the profit is business income and every dollar is taxable, so the tax roughly doubles at the same marginal rate. The principal residence exemption is also unavailable, so living in the property does not help.

How is the holding period measured?

The test is 365 consecutive days of ownership, running to the date of disposition. A property owned for 365 days or more falls outside the rule and is assessed under the normal capital gains treatment, subject to the general question of whether the transaction was an adventure in the nature of trade.

Which life events are excepted?

The rule does not apply where the disposition can reasonably be considered to occur because of, or in anticipation of, a listed event. These include the death of the taxpayer or a related person, a household addition such as a birth or an elderly relative moving in, a breakdown of a marriage or common-law partnership after at least 90 days of living apart, a threat to personal safety, a serious illness or disability, an employment change requiring a move of at least 40 kilometres closer to work, an involuntary termination of employment, insolvency, and a disposition against the owner's will such as expropriation or destruction.

Does the rule apply outside deliberate flipping?

It applies by its terms to any qualifying disposition inside the period, whether or not there was any intention to trade. That is why the exceptions matter: an ordinary owner who has to move quickly for an unlisted reason can still be caught. Even where the rule does not apply, a sale can separately be treated as business income if the circumstances show a trading intention.

The same sale, held under and over a year

Profit on the sale	$80,000
Held under 365 days: taxable amount	$80,000
Estimated tax	$28,509
Held two years: taxable amount	$40,000
Estimated tax	$13,395
Difference	$15,114

An Ontario resident with $95,000 of other income. The same profit costs $15,114 more when the flipping rule applies.

Try your own figures in the Canada capital gains tax on property calculator.