Inside 365 days, the argument is over
Since January 1, 2023, a residential property sold within 365 days of acquisition is a flipped property: the gain is deemed business income, 100% taxable, and the principal-residence exemption is unavailable. The rule cuts the other way too, because a loss on a flipped property is deemed to be nil.
Limited life-event exceptions exist: death, a related person joining the household, marriage breakdown after at least 90 days apart, a threat to personal safety, serious illness or disability, an eligible work relocation, involuntary job loss, insolvency, and expropriation or destruction. An exception has to be evidenced, not just claimed. And it only lifts the deeming rule; CRA can still argue business income on ordinary principles.
Past 365 days, the facts take over
Day 366 is not a safe harbour. The courts weigh what you intended at purchase, including the fallback plan if the first one failed, along with the frequency of similar deals, your expertise and occupation, the nature of the financing, the work done to the property and what actually prompted the sale. Short-term private money and a listing that goes up the week the permits close both read as trading.
A genuine BRRRR hold, refinanced and tenanted for years, is capital when sold. A renovator's fourteen-month hold marketed the moment the work finished is business income at any age. We assess the position deal by deal and file it consistently, because a taxpayer whose returns alternate between characterizations is inviting review.
Where common exits land
| The exit | Tax treatment |
|---|---|
| Sold within 365 days, no life event | Business income; loss deemed nil; no principal-residence claim |
| Sold after 365 days, but bought to resell | Still business income if the facts show trading |
| Bought to rent, held long term, then sold | Capital gain, 50% inclusion |
| Assignment of a pre-construction contract | Business income in most hands, and HST applies to the fee |
Assignments deserve their own caution. Since May 7, 2022, every assignment sale of a new-construction home is taxable for HST: 13% applies to the assignment fee, with amounts that merely return your deposit carved out, and CRA expects the tax remitted whether or not you are registered. The 365-day clock also runs on the contract itself, so assigning a right you have held less than a year puts the profit inside the flipping rule.
Filing it: T1, T2 and the instalments in between
Personally, a flip reports as business income on form T2125 at your marginal rate, which reaches 53.53% in Ontario. Inside a corporation it is active business income at roughly 12.2% on the first $500,000, filed on the T2 with the balance due after year-end. Many investors need both returns talking to each other, which is why our Corporate Tax Filing and Personal Tax Filing are prepared as one engagement, not two silos.
Timing matters too. Because a flip is inventory, the profit is recognized when the sale closes, not when the buyer's deposit lands, so a deal that goes firm in December and closes in January belongs to the later year. That single fact drives instalment planning: once tax owing passes $3,000, instalments start for the following year, and one profitable closing is enough to trigger them. If the project was a new build or substantial renovation, HST returns run alongside the income tax filings; the builder analysis is covered in detail on our accounting page for investors.
When the review letter arrives
CRA runs dedicated real estate audit activity in the GTA, matching land registry transfers, mortgage records and listing history against filed returns, so unreported or mischaracterized sales surface on their own. Reviews typically ask for closing statements, renovation invoices, financing documents and evidence of intention, organized per property.
The stakes climb quickly when a sale was left off the return entirely. Beyond the reassessed tax and arrears interest, CRA applies gross negligence penalties of 50% of the understated tax where it considers the omission knowing or careless, and flipped properties are a stated focus. Filing it right the first time is dramatically cheaper than defending it later.
We keep the file in that shape from day one, and when a letter does arrive, CRA Audit & Review Support responds in writing, on time, with the position already documented rather than assembled under deadline.
