A recent Canadian tax law aims to curb speculative real estate sales by penalizing homeowners who sell a property within 365 days of purchase. Introduced in the 2022 federal budget and effective from January 2023, this law requires that any profit from such a sale be reported as business income, making it ineligible for the primary residence exemption. This could result in significant taxes, ranging from 28% to 53% of profits, depending on the seller's income bracket.
Exemptions to the Law
The Canada Revenue Agency (CRA) offers exemptions for homeowners forced to sell due to one of nine specified circumstances, including:
Death, illness, or disability
Marriage breakdown
Job relocation or involuntary job loss
Safety concerns or property expropriation
These exemptions are intended to support Canadians facing unavoidable challenges.
Additional Impact on Pre-Sale Condos and Assignments
The new rules also apply to pre-sale condos, where assignment sales are now subject to HST. Under the new policy, the CRA no longer needs to prove the seller intended to flip the property; any sale within a year automatically qualifies as business income unless an exemption applies.
CRA Monitoring and Penalties
The CRA has four real estate audit teams focused on high-risk areas in Ontario and British Columbia to ensure compliance. Non-compliance can lead to steep penalties, including a 50% surcharge on the tax owed and interest if false information is filed.
Tips for Homeowners
To avoid being taxed as a business, homeowners who want to sell should wait until after the 365-day mark to benefit from the primary residence exemption. Selling on day 366 could save substantial tax costs.