Tax Guide for House Flippers in Quebec: Business Income vs Capital Gains, GST/QST Rules, and Renovation Documentation — CPA Firm Near You, Montreal

Introduction

House flippers in Quebec operate in one of the most heavily audited sectors. CRA and Revenu Québec closely examine flips because many taxpayers incorrectly report profits as capital gains rather than business income, fail to charge GST/QST when required, or lack documentation for renovations. This guide explains how flipping income must be reported, how sales tax applies to renovated properties, which expenses are deductible, and how a CPA firm near you in Montreal can protect you from reassessments.

Legal and Regulatory Framework

Under the Income Tax Act and the Taxation Act of Quebec, the profit from flipping properties is generally considered business income — meaning 100 percent is taxable — if the intention at the time of purchase was resale. Capital gains (50 percent taxable) apply only when a property is purchased for long-term investment. GST and QST apply to the sale of new or substantially renovated residential properties, meaning flippers may need to collect and remit sales tax. Deductible expenses include renovation materials, subcontractor labour, financing costs, interest, utilities during construction, property taxes, accounting fees, and advertising. CRA and Revenu Québec require full documentation of all renovation costs, purchase agreements, and resale documentation.

Key Court Decisions

Courts repeatedly rule against taxpayers who attempt to classify flips as capital gains. Judges consider intention, frequency of transactions, type of renovation, and overall conduct. In multiple cases, gains were reclassified as business income due to repeated flipping activity or substantial renovations done for resale. Courts also confirmed that GST/QST must be charged on the sale of substantially renovated homes and that missing contractor receipts or undocumented labour will result in denied deductions.

Why CRA and Revenu Québec Target House Flippers

Flippers are heavily audited because of:
• Improper reporting of business income as capital gains
• Failure to remit GST/QST on new or substantially renovated properties
• Missing receipts for renovations
• Cash labour payments
• Frequent property transactions
• Unexplained bank deposits
• Assignment deals not reported

Auditors review land registry data, building permits, contractor invoices, MLS listings, bank statements, and renovation timelines to reconstruct profit.

Mackisen Strategy

At Mackisen CPA Montreal, we help flippers structure their business properly from day one. We determine whether a sale is taxable as business income or capital gains, analyze GST/QST obligations for renovated properties, and build complete job-costing systems. We organize contractor invoices, materials, before-and-after documentation, and financing records to support all deductions. Our team prepares year-end filings, business statements, and capital recapture calculations when needed. If audited, we defend your classification, reconstruct renovation costs, and negotiate to reduce reassessments.

Real Client Experience

A Montreal flipper sold three renovated houses in two years but reported all profits as capital gains. CRA reclassified the income as business income and initiated a GST/QST audit. We produced a full intention analysis, reconstructed all renovation expenses, and negotiated a substantial reduction in penalties. In another case, a flipper’s undocumented cash labour was denied; we rebuilt records and salvaged allowable deductions.

Common Questions

Is flipping considered business income?

Yes. In most cases, house flipping is treated as business income unless the property was clearly purchased as a long-term investment.

Do flippers need to charge GST/QST?

Yes, when selling new or substantially renovated homes.

What renovation expenses are deductible?

Materials, subcontractor labour, interest, utilities, property taxes, insurance, and accounting fees — with full documentation.

How do I protect myself from an audit?

Maintain receipts, track renovation stages, document intent, and keep complete financial records.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps house flippers stay compliant while maximizing profitability. Whether you’re flipping one property or managing multiple projects, our expert team ensures precision, transparency, and protection from audit risk.