Property Flipping

People, including real estate agents, who buy and resell homes in a short period for a profit are engaged in property flipping. There are three main categories of people engaged in this:

Professional contractors or renovators – They rapidly buy and sell real estate at a profit (sometimes demolishing or renovating the property).

Speculators or middle investors – They buy a property and then, for a profit, assign the right-to-sell clause that is in the contract to another speculator or the final buyer. This is called "shadow flipping". It can occur many times between the first sale and the final sale of a property. The original seller often does not know that their property has been assigned to another buyer until the signing date.

Individual renovators – They buy real estate, renovate it, live in it for a short time, and sell it so they can claim the principal residence exemption several times in their lifetimes.

The CRA acquires and analyzes third-party data and has found that some flips are not being reported or are being reported incorrectly. The profits from flipping real estate are generally considered to be fully taxable as business income. The facts of each case determine whether such profits should be reported as business income or as a capital gain.

Ravinder Makkar

Chartered Professional Accountant

905-791-6666

* The above information is general information, does not apply to all client situations and is situation specific.