If a person sold a property (residential or commercial) less than 1 year after ownership, it is considered a “flipped property”, which carries significant tax implications. ]
One tax implication is that the property is considered inventory and the sale is considered as carrying on a business. This means any profit is taxed as business income and GST/HST would be applicable on the sales proceeds.
The second tax implication is that any loss would be denied.
However, it is not considered a flipped property if it is one of the following events triggering the sale:
- the death of the taxpayer or a person related to the taxpayer,
- one or more persons related to the taxpayer becoming a member of the taxpayer’s household or the taxpayer becoming a member of the household of a related person,
- the breakdown of the marriage or common-law partnership of the taxpayer if the taxpayer has been living separate and apart from their spouse or common-law partner for at least 90 days prior to the disposition,
- a threat to the personal safety of the taxpayer or a related person,
- the taxpayer or a related person suffering from a serious illness or disability,
- an eligible relocation of the taxpayer or the taxpayer’s spouse or common-law partner, if the definition eligible relocation were read without reference to the requirements for the new work location and the new residence to be in Canada,
- an involuntary termination of the employment of the taxpayer or the taxpayer’s spouse or common-law partner,
- the insolvency of the taxpayer, or
- the destruction or expropriation of the property.
For point #6, the definition of eligible relocation is found Income Tax Act section 248(1), which essentially means the person is moving to a new residence for a new work, business or study location that’s 40 km or more away.
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