Residential Property Flipping Rule
Residential properties which are sold after December 31, 2022, and which were owned for less than 12 months, will be deemed to be business income. This means the entire profit is included in one’s income. The capital gains treatment, and the Principal Residence Exemption are not available under these circumstances.
There are some exceptions to this tax treatment, which are based on certain life events such as the growth of a household, a separation, a disability or illness, an employment change, an insolvency, or an involutary disposition. Whether an exception applies depends on the facts of the situation.
Where the new deeming rule does not apply because of a life event as noted above, or because the property was owned for 12 months or more, it is still a question of fact whether the profits are taxed as business income. The taxation of income earned from real estate sales is becoming stricter.
GST/HST on Assignment Sales by Individuals
As of May 7, 2022, where an individual sells an assignment of a newbuild or substantially renovated residential property, the transaction is subject to HST. However, HST is no longer charged on recovered deposits.
The assignor is usually responsible to charge, collect and remit any applicable HST to Canada Revenue Agency. Where the assignor is non-resident, the assignee would be required to self-assess and pay the HST directly to Canada Revenue Agency.
Different rules apply to assignment agreements entered into prior to May 7, 2022.
The HST rebate for a property may be impacted by these new GST/HST taxation rules.
If you are dealing with a tax matter involving a real estate transaction, we are available to assist!
