Flipping or Investing? What a 2024 Court Case Reveals About Real Estate Taxation in Canada
Real Estate Sales in Canada: Income or Capital Gain? A 2024 Court Case Offers Key Insights
When selling real estate in Canada, one of the most important tax questions is whether the profit is considered a capital gain (50% taxable) or business income (100% taxable). A recent July 19, 2024 Court of Quebec decision sheds light on how the courts determine this distinction—and why intent and behavior matter more than ever.
2025 Case Summary: A Quick Sale, a Big Profit
In this case, the taxpayer purchased a residential property in 2016 during a temporary marital separation. Within six months, she sold the property at a significant profit after completing renovations. The sale occurred before the federal property flipping rules came into effect on January 1, 2023, which automatically treat sales within 12 months as business income unless an exception applies.
Despite the taxpayer’s claim that the property was intended as a personal residence, the Court ruled that the profit was fully taxable as business income. Here's why.
Key Factors That Influenced the Court’s Decision
Purchase Conditions and Renovation Activity
The property was bought below municipal assessment from an estate, without legal warranty.
It was insured as vacant, never occupied, and quickly renovated.
The taxpayer never changed her address to the property, undermining the claim of personal use.
Financial and Listing Indicators
The mortgage had no early repayment penalties, suggesting short-term intent.
The original listing described the home as a “flip opportunity,” indicating a profit motive from the outset.
Pattern of Behavior
The taxpayer engaged in similar transactions in 2018 and 2019, buying, renovating, and reselling homes without using them as residences.
This pattern demonstrated a business-like approach to real estate, not personal investment.
Marital Circumstances Questioned
The taxpayer cited marital issues as the reason for the purchase, but the Court found inconsistencies.
Her husband later purchased another property under similar conditions, casting doubt on the narrative.
The Verdict: Business Income
The Court concluded that the taxpayer’s primary intent was to earn a profit, not to establish a residence. The combination of purchase strategy, renovation activity, financial arrangements, and repeated behavior pointed clearly to business income, not a capital gain.
Why This Matters for Taxpayers
This case is a reminder that intent, documentation, and behavior are critical when selling real estate. Even if the sale occurs outside the 12-month window covered by the federal flipping rules, the CRA and courts will look at the full context to determine tax treatment.
Tips for Real Estate Sellers
Document your intent clearly if you plan to live in the property.
Avoid patterns of frequent buying and selling unless you’re prepared to report income.
Consult a tax professional before selling, especially if renovations or short-term ownership are involved.
Need help determining the tax implications of your real estate sale?
Our experienced accounting team can help you navigate the rules and ensure you're reporting correctly. Contact us today for personalized advice.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
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