The federal property flipping rules came into effect on January 1, 2023, to address the government’s concerns about the rapid escalation of housing prices and speculative real estate activity. These rules were intended to create stability in the housing market and ensure that homes would be used for residential purposes rather than as short-term investments. The province of British Columbia subsequently introduced its own property flipping rules, effective January 1, 2025, to discourage the short-term holding of property for profit.
It’s important to note that the taxes imposed under the BC rules are separate and distinct from those under the federal property flipping rules. For taxpayers and professional advisors, this means taking extra care when planning the disposition of property.
Overview of the federal and BC rules
The property flipping rules in Canada’s Income Tax Act generally deem the gain from the disposition of a flipped property to be inventory and, therefore, tax it as business income rather than a capital gain. These rules apply to a housing unit (or the right to acquire a housing unit—i.e., a presale contract) located in Canada, where the taxpayer owns the property (or the right to acquire the property) for less than 365 consecutive days before its disposition.
There are specific exceptions to the federal rules that provide relief when certain life events occur; however, these exceptions do not apply to various tax planning transactions where a taxpayer owns property for less than the required 365 consecutive days but the disposition falls outside of the activities that were targeted by the government when the rules were introduced.
The rules introduced by the province of British Columbia are separately governed through the Residential Property (Short-Term Holding) Profit Tax Act. These rules generally apply a tax where a person (an individual, corporation, partnership, or trust) disposes of property for a profit on or after January 1, 2025, having purchased the property less than 730 days before the sale.
Taxable property for the purpose of the BC rules refers to a beneficial interest or a right to acquire a beneficial interest in residential property. The applicable tax rate is 20% of net taxable income (generally being the proceeds of the property’s disposition, reduced by its cost and the cost of improvements) earned from a property sold within 365 days; the tax rate decreases over the next 365 days, with a full phaseout at the end of the 730-day holding period.
Similar to the federal rules, the BC rules provide exceptions for certain life events. Additionally, they provide exceptions for builders, developers, and building or renovation activity, as well as for certain related party transfers that are typical of various tax-planning transactions.
Practical implications
From a tax-planning perspective, real property (including housing units) is often transferred within a related group for reasons other than those targeted by the federal government when it introduced the property flipping rules. However, as the federal rules do not provide relief for related-party transactions and the BC rules only provide exceptions for certain related-party transfers, common tax-planning transactions may now result in certain property being considered “flipped property.” This can be punitive where the purpose of undertaking the related-party transaction is not a true disposition for the purpose of profit.
Here’s a deeper dive into the possible implications:
Amalgamations
Consider a scenario in British Columbia where Corporation A and Corporation B undertake an amalgamation to form a new entity: Corporation C. Before the amalgamation, Corporation A holds a housing unit purchased more than two years earlier. Less than 365 days after the amalgamation, Corporation C disposes of this housing unit.
Generally, for income tax purposes, Corporation C would be deemed to acquire the property of its predecessor corporations at an amount equal to their adjusted cost base immediately before the amalgamation. This means that Corporation C would assume Corporation A’s housing unit at a cost equal to its adjusted cost base immediately before the amalgamation.
In BC, if a person acquires a property from a “related person,” the person is deemed to have acquired the property on the same date that the related person acquired the property. Further, where a new corporation is formed as a result of the amalgamation of two or more predecessor corporations, the new corporation is considered to be related to the predecessor corporations. Accordingly, in the aforementioned example, Corporation C would be deemed to have acquired the housing unit at the time it was acquired by Corporation A (i.e., more than two years before its disposition), and the BC property flipping rules should not apply to the sale. However, because the same related-party exception does not apply at the federal level, the federal property flipping rules would still need to be considered.
During the CRA roundtable at the Canadian Tax Foundation’s annual conference in 2024, it was noted that for the purpose of the federal property flipping rules, a new corporation is not deemed to be the same entity as, or a continuation of, its predecessor corporations.1 Therefore, the 365-day clock would restart as a result of the amalgamation.
Using the aforementioned example, this means Corporation C would be deemed to have acquired the housing unit as a result of the amalgamation, and the federal property flipping rules could apply to its disposition of the property less than 365 days after that amalgamation. Consequently, any profit could be taxed as business income rather than a capital gain. This result would not be aligned with the intention of the government in implementing the federal property flipping rules and would be punitive to a corporation on the ultimate disposition, even though the property had been held by a predecessor corporation for the required holding period.
Related-party transfers
A similar mismatch between the BC and federal property flipping rules may occur on the transfer of property between related persons. Assume, for example, that:
- Individual A transferred property to Corporation B on a tax-deferred basis in exchange for shares of Corporation B;
- Individual A acquired the property five years prior to the transfer; and
- Corporation B disposes of the property less than 365 days after the transfer.
For the purposes of the BC property flipping rules, Corporation B would be deemed to have acquired the property at the time it was acquired by Individual A, so the ultimate disposition by Corporation B should not be subject to the BC property flipping rules. However, as the federal property flipping rules do not contain a continuity of ownership provision for cases where property is acquired from a related person, the federal property flipping rules could apply to Corporation B when it disposes of the property.
Life interest trusts
Now let’s consider a very common tax-planning transaction involving a life interest trust. Let’s say Individual A, who is over the age of 65, contributes a housing unit to an alter ego trust. Individual A held this property for more than 730 days before the date of contribution to the trust. Individual A is both the trustee of the trust and its sole beneficiary while they are living. The trust sells the housing unit less than 365 days after it acquires the property.
For the purposes of the BC property flipping rules, the legislation does not specify that a trustee of a trust is related to themselves. Accordingly, it is reasonable to assume that Individual A in this scenario, as trustee of the alter ego trust, is not related to themselves as an individual. As a result, the 730-day holding period would likely restart when the property is contributed to the trust, which means the subsequent disposition of the property by the trust could result in the application of the BC property flipping tax.
Similarly, the federal property flipping rules do not contain continuity provisions if a property is transferred by an individual to a life interest trust. Using the above example, the disposition of the housing unit by the trust within 365 days of the contribution date could result in the unit being considered flipped property. And, as an extremely punitive result, if the housing unit was considered a principal residence, the principal residence exemption would not apply, as the property would not be considered capital property of the individual.
Careful consideration needed
As they relate to common tax-planning transactions, the practical implications of the federal and BC property flipping provisions are significant. Taxpayers must give careful consideration to the holding period of properties and the specific circumstances surrounding their disposition when undertaking any tax plan that involves the transfer of or right to acquire a housing unit.
Understanding these rules can help to ensure that both professional advisors and taxpayers make informed decisions related to the holding and disposition of property.
Aliya Goldan, CPA, CA, is a partner in tax with Smythe in Vancouver, where she specializes in corporate and personal tax planning, including corporate reorganizations, for privately held businesses.
This article was originally published in the May/June 2025 issue of CPABC in Focus.
Footnotes
1 2024-1037751C6: CTF Annual Conference, CRA Roundtable, Q. 12 – Property flipping rules and corporate property transfers, December 3, 2024. (taxinterpretations.com)
