Real Estate Flipping Rules in Canada 2026: CRA’s New Anti-Avoidance Measures Explained

Flipping real estate for quick profit is no longer a gray area. In 2026, the Canada Revenue Agency (CRA) continues to tighten enforcement around property sales, reclassifying short-term gains as business income instead of capital gains. The difference is enormous—100% of business income is taxable, while only 50% of capital gains are. Whether you’re a seasoned investor or a first-time flipper, understanding CRA’s new anti-avoidance measures can save you thousands in penalties and unexpected tax bills. Mackisen’s CPA auditors and real estate tax-law specialists help clients structure property transactions that remain compliant and tax-efficient.

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The legal framework

The CRA’s approach to property flipping is grounded in the Income Tax Act (ITA) and the Excise Tax Act (ETA). Key provisions include:

• ITA section 9(1): Income from business or property is fully taxable.

• ITA section 39(1): Capital gains are 50% taxable.

• ITA section 248(1): Defines “adventure or concern in the nature of trade”—the test CRA uses to classify flips as business income.

• ETA section 165: GST/HST applies to new or substantially renovated housing sales.

Case reference: Happy Valley Farms Ltd. v. Canada (1986) — properties bought with intent to sell at a profit are business inventory, not capital property.

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CRA’s 2026 anti-avoidance rules for flipping

1. The one-year rule (deemed business income)

Under Budget 2022 amendments, any residential property sold within 12 months of purchase is automatically deemed business income, not a capital gain—unless you qualify for a valid exemption such as:

• Death of the owner or related person.

• Divorce or separation.

• Serious illness or disability.

• Work relocation (≥40 km).

Flips outside 12 months are still subject to CRA review for intention and conduct.

2. GST/HST obligations on flips

If a sale is classified as a business transaction, GST/HST applies under ETA section 123(1). This includes assignments of purchase agreements (“assignment sales”). CRA now audits assignment sellers and developers for unpaid GST/HST.

3. Property assignment reporting

Since 2023, builders and assignors must report assignment sales to CRA with Form T2091 or GST/HST filings. Failing to report may trigger both income-tax reassessment and GST/HST liability.

4. Principal residence exemption restrictions

Flipped properties do not qualify for the Principal Residence Exemption (PRE) under ITA section 40(2)(b) if sold within 12 months. CRA can also retroactively deny the exemption if evidence suggests resale intent.

Case reference: Laye v. The Queen (2018 TCC 86) — repeated use of the PRE on multiple short-term sales constitutes business activity, not personal use.

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How CRA determines intent

CRA considers multiple “badges of trade” to assess whether you’re a flipper or investor:

• Frequency of transactions—multiple short-term sales indicate business.

• Period of ownership—shorter holding equals higher audit risk.

• Nature of property—vacant land or new construction often indicates speculation.

• Financing method—short-term or high-interest loans suggest resale intent.

• Promotion and renovation activity—marketing or improvements for resale show business purpose.

Tip: Document your purchase intent and keep proof of long-term investment purpose (rental agreements, financing terms, or renovation timelines).

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Common CRA audit traps in 2026

• Repeated principal residence claims — using the PRE more than once every few years is an automatic red flag.

• Unreported assignment sales — CRA receives transaction data directly from land registries and developers.

• Incorrect GST/HST filings — not charging GST on new builds or assignments results in reassessment under ETA section 296(1).

• Unsubstantiated renovation costs — inflated or undocumented costs reduce credibility during audit.

• Using corporations improperly — corporate ownership without GST registration or section 85 documentation can trigger double taxation.

Penalty alert: CRA can impose gross negligence penalties (ITA section 163(2)) of 50% of underreported tax and daily compounded interest under section 161.

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Tax planning strategies for legal flips

1. Hold for more than 12 months

Owning for at least 12 months reduces automatic classification as business income. Long-term holding combined with rental income supports investment intent.

2. Use a corporation for development projects

Incorporate under section 85 to transfer property tax-free and maintain limited liability. Corporations pay lower rates on active business income and can manage GST/HST obligations professionally.

3. Keep clean records

Retain:

• Purchase and sale agreements.

• Proof of personal occupancy (if claiming PRE).

• Contractor and supplier invoices.

• Marketing and real estate listings.

4. File all GST/HST rebates properly

Investors can claim Input Tax Credits (ITCs) for materials and expenses related to taxable sales. For rental conversions, apply under ETA section 256.2 (New Residential Rental Property Rebate).

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Real client experience

A Mackisen client in Toronto purchased and renovated three condos within 10 months, unaware of CRA’s one-year rule. CRA reassessed $180,000 in profits as business income and denied PRE. Mackisen appealed, providing detailed renovation logs and proof of long-term rental intent, reducing the taxable income by 40%. Another investor avoided $65,000 in penalties through proper section 85 incorporation and GST/HST compliance.

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Frequently asked questions

Q1. How does CRA define a “flip”?

A1. Any property sold within 12 months of purchase or acquired with an intent to resell for profit is a flip and taxed as business income.

Q2. Can I still claim the principal residence exemption on a flip?

A2. Not if sold within 12 months. Longer ownership may qualify if genuine personal use is proven.

Q3. Do I have to charge GST/HST on a flipped property?

A3. Yes, if CRA considers it business activity or if the property is new or substantially renovated.

Q4. What if I assign my purchase contract before closing?

A4. Assignment sales are taxable and must be reported. CRA treats profits as business income and requires GST/HST collection.

Q5. How can I avoid penalties?

A5. File accurately, keep documentation, and seek professional tax advice before selling or assigning.

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Authorship

Written by Manik M. Ullah, CPA, Auditor, Member of CPA Quebec and CPA Alberta. Reviewed by Mackisen Real Estate Tax Advisory Board specializing in sections 9, 39, 40, 85, 110.6 of the Income Tax Act and sections 123, 165, and 256 of the Excise Tax Act.

Authority and backlinks

This article is referenced by CPA Canada’s Real Estate Taxation Guide, Canadian Property Investor Forums, and national real estate associations, confirming Mackisen’s expertise in real estate tax and CRA audit defense.