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Home  ->  Personal Income Tax  ->  Real Estate  -> Are Real Estate Sales Taxable?

Real Estate Sales - Are They Taxable?  What About My Principal Residence?

Taxation of Real Estate Sales - General Rule

Sale of Principal Residence - Must Be Reported on Tax Return

Date of Ownership for Tax Purposes

Frequency of Selling

Residential Property Flipping Rule

Land Without a Housing Unit

How Much Land for the Principal Residence Exemption?

Real Estate (Capital Property) Gifted or Sold Non-Arm's Length Resources

Tax Court Cases Re Sales of Real Estate

Taxation of Real Estate Sales - General Rule

The gain on the sale of real estate is a capital gain unless the property has been purchased with the intent of reselling at a profit, or developed and sold as a business endeavour.  If it is considered a business transaction, the entire profit on the sale is taxable. If the transaction is a capital gain (principal residence, summer cottage, second home, rental home, etc.), only 50% of the gain is taxable. The principal residence exemption may eliminate part or all of a capital gain.

It appears in 2024 that Canada Revenue Agency (CRA) is very actively seeking and reassessing those taxpayers who have bought houses intending to sell them at a profit, and have sold them without reporting the income as business income.  The length of time that the house was owned is not necessarily relevant. See CRA Widening The Net In The Hunt For House Flippers by Christine Aston of Wilson Vukelich LLP.

Sale of Principal Residence - Must Be Reported on Tax Return

If the property is the taxpayer's principal residence, the principal residence exemption may eliminate all or part of the capital gain for one housing unit.  The CRA policy used to be that the form need not be filed unless there is a taxable gain after deducting the principal residence exemption, or a capital gains election was filed in respect of the property in the taxpayer's income tax return for 1994.  However, beginning with the 2016 taxation year, all principal residence sales must be reported on the income tax return.

Tax Tip: A separate suite in your house, or a laneway house on your property, may not qualify for the principal residence exemption.

The above must be considered when deciding to make renovations or additions eligible for the Multigenerational Home Renovation Tax Credit.

Date of Ownership for Tax Purposes

The sale of real estate will be reported on your tax return for the calendar year in which the legal title to the property is transferred to the buyer - this is the completion date.  The possession date is the date on which the buyer is given the keys and can move in, which is often 1 or 2 days after completion date, but could be on the same date.

Frequency of Selling

Prior to 2022 legislation, there weren't any set rules about how often a person can buy or build a house, move into and reside in it, then sell it, without the transactions being considered business transactions.  CRA would look at the frequency and the intent (i.e., whether the houses were being purchased or built with the goal of reselling and making a profit, or because the person wanted a new house to live in or to rent out).  They might even look at a single event of purchasing or building and reselling a house and decide that it was a business transaction, even if the house has been used as a principal residence.  Check out the current version of Interpretation Bulletin, IT-218R (Archived), re profits on the sale of real estate, especially the first few paragraphs.  See also the case of Hansen v. The Queen, with 5 houses bought and sold over 6 years - link at bottom.

Residential Property Flipping Rule

The federal 2022 budget introduced a new Residential Property Flipping Rule, which will be applicable for dispositions on or after January 1, 2023.

This does NOT mean that selling a residential property that has been held at least 12 months will automatically not be viewed as a case of property flipping.  The Income Tax Act, which already make property flipping taxable as business income, will still apply to those sales.

See also the Video Tax News May 2022 Life in the Tax Lane re the federal 2022 budget and property flipping.

Land Without a Housing Unit

If land is purchased without a housing unit on it, that property cannot be considered the principal residence until the year that a house is built and you move into it.

How Much Land for the Principal Residence Exemption

CRA usually considers that if there is more than 1/2 hectare (1.25 acres) of property, only 1/2 hectare of the land can be considered part of the principal residence, and there would be a capital gain on the excess when the property is sold, even if the rest is the principal residence.  However, they also consider whether the property is subdividable when purchased.  Thus, if the property is 2 hectares, and is not subdividable, they may consider the whole amount of the land to be part of the principal residence.

There was a lot of information on this topic in CRA's Interpretation Bulletin IT120, Principal Residence, including the part about building on vacant land, the 1/2 hectare rule, etc. This bulletin is no longer available - it was replaced by Income Tax Folio S1-F3-C2: Principal Residence, which contains a link to form T2091(IND) for the principal residence exemption.

Real Estate (Capital Property) Gifted or Sold Non-Arm's Length

If you plan to gift real estate or other capital property to a non-arms-length person, or sell it to them at less than fair market value (FMV), there may be tax implications.  See Are Gifts or Inheritances Taxable? Resources

Attribution Rules re Gifts, Transfers, or Loans to a Spouse or a Related Minor Child

Principal Residence Exemption

Multigenerational Home Renovation Tax Credit

Tax Court Cases Re Sales of Real Estate

Wall v. The Queen, 2019 TCC 168, discussed in the Life in the Tax Lane October 2019 video - 4 properties sold over 5 years.

Hansen v. The Queen, 2020 TCC 102 discussed by Advotax Law - 5 houses bought and sold over 6 years.

Salama c. Quebec Revenue Agency, 2022 QCCQ 718 (CanLII) - re multigenerational home

Tax Tip:  Before making any real estate investments, make sure you know the tax consequences.

Revised: April 10, 2024


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