Everything You Need to Know About the Anti-Flip Tax

Everything You Need to Know About the Anti-Flip Tax

Real estate flipping is defined as the act of acquiring a residence at a low price, renovating it, and immediately putting it back on the market to generate a tidy profit. An anti-flip tax was introduced at the beginning of 2023 to help cool the real estate market for buyers. 

What are the true impacts of this tax? Is buying a property in view of renovating and reselling it still worthwhile? 

What Does This New Tax Entail?

As of January 1, owners reselling a real estate asset (including condos and other rental buildings) within less than one year of purchase will be considered to have earned a business income. The profit generated will therefore be 100% taxable, instead of the previous 50% rate applicable to capital gains. To reduce the tax rate back down to 50%, house flippers will have to hold on to the property for more than 12 months before listing it. It is equally no longer possible to circumvent the law by designating the flip as the principal residence.


Why Was It Created?

This new law’s intent is its most notable feature. It states that if buyers have purchased a property with the intention of reselling it, they will have to pay tax on the total profit earned.

Despite being a completely legal practice, real estate flipping is criticized for many reasons: the acquisition and quick resale of homes contribute to price inflation in the real estate market—mainly for first-time buyers—as well as in the rental market. This means that housing is increasingly expensive. It has been observed that in the overheated real estate market the sale price of a house or multiplex jumps by 30% to 40% if it is being relisted following a flip. Furthermore, if you are purchasing a flipped property, don’t skip the pre-purchase inspection. Even if the residence has just been renovated, better safe than sorry!


Are There Exceptions?

This new real estate tax legislation is strict; however, those who still wish to flip houses or condos can choose to wait thirteen months before putting the property back on the market—not a major inconvenience. Moreover, an exception is allowed for specific life events: death, birth or adoption of a child, separation, inability to pay, illness, a move over 40 km away for a new job, etc. In short, the law aims to curb flipping for profit, not financially hinder legitimate recent homeowners from divesting themselves of a residence that no longer meets their needs. 

Additional Real Estate Flipping Facts

This concept of short-term capital gains originated in the United States, where it has been standard practice for several years. We all remember the real estate crash of 2008 which devastated the market there. Previously in Canada, the onus of proving that a quick resale was connected to a real estate flip lay on the Canada Revenue Agency. With this new legislation in place, the CRA has been freed from this obligation. The rule is clear: if the flip occurs within less than a year, the total profit generated is taxable as if it was a business income.

Are you interested in flipping houses? Don’t let this new law prevent you from undertaking such a project! 

RE/MAX Québec

By RE/MAX Québec

By RE/MAX Québec

A leader in the real estate industry since 1982, the RE/MAX network brings together the most efficient brokers.