Recent changes to mortgage rules have caused the housing market to cool slightly. What was once a highly lucrative industry, has turned into a mess for some but this isn’t to say that it can’t still be profitable for those who play their cards right. It’s important to fully understand the tax laws surrounding flipping houses if you want to try and make a go of it.
There is a fine line between tax-free profits and business income. The closer your business is to commercial real estate transactions (for example, if you are a broker or builder), then chances are the money you receive from the sale of a house would not qualify for the principal residence exemption and it would be considered business income rather than capital gain.
CRA looks at a few things when it comes to whether you qualify for the principal residence exemption when selling a home. If you buy and sell too often, you may be disallowed for this exemption which would mean that the money you receive could be 100% taxable.
So what are the criteria CRA uses? It’s usually on a case-by-case basis, but here are a few good questions to ask yourself: