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New CRA Rule Has Implications For Homebuyers

New CRA Rule has Implications for Homebuyers

People who purchase and sell a property within a 365-day period may have to pay taxes on the profits of the sale.

This is according to a new rule by the Canada Revenue Agency (CRA) that aims to deter residential property flipping.

Profits from the sale of a flipped property are deemed to be business income and are fully taxable. They cannot be treated as a capital gain, where 50% of the profit is taxable, and the principal residence exemption is not available.

The rule also applies to profits arising from an assignment sale and pre-construction purchases. These profits are deemed to be business income if the rights to purchase a property were assigned before the end of the 12-month holding period.

An assignment is when a seller sells their interest in a property before they take possession. In other words, they sell the Agreement of Purchase & Sale contract they have with, for example, a condominium developer to a new purchaser. The buyer of an assignment is effectively stepping into the shoes of the original purchaser.

A transaction could be excluded from the rule if the circumstances align with one of the accepted exemptions outlined by the CRA. This includes the death of the taxpayer, a relative joining the household, a divorce/separation, bankruptcy, illness or disability, education or employment-related relocation, among other life events.

The rule applies to the 2023 taxation year and all subsequent years.