Real estate flipping has become a popular investment strategy in recent years. It involves buying a property, fixing it up, and then quickly selling it for a profit. While flipping can be a lucrative investment, it is important to understand the tax implications before diving in. In this blog post, we will discuss real estate flipping and taxation in the context of the Canadian market.

First, it is important to understand that the Canada Revenue Agency (CRA) considers real estate flipping to be business income, rather than a capital gain. This means that any profit made from flipping a property is subject to income tax. The income tax rate for business income is higher than the capital gains tax rate, which is typically applied to long-term investments.

Additionally, if flipping properties is a regular business activity for you, you may be required to register for and collect GST/HST. This applies if you make over $30,000 in sales per year. GST/HST is a value-added tax that is added to the price of goods and services sold in Canada.

Another factor to consider when flipping properties is that any expenses related to the flip can be deducted from the profit. This includes expenses such as renovations, realtor fees, and legal fees. It is important to keep detailed records of all expenses related to the flip, as well as the purchase and sale of the property.

In some cases, if you hold the property for a longer period of time before selling it, you may be eligible for the capital gains tax rate instead of the business income tax rate. However, the CRA will consider various factors when determining whether the property was held for a short-term investment (flipping) or a long-term investment.

It is also worth noting that if you are flipping properties with the intention of making a profit, you may be subject to the Real Estate Speculation Tax (REST) in certain markets. This tax is designed to discourage speculation in the real estate market and applies to properties that are bought and sold within a short period of time.

In conclusion, real estate flipping can be a lucrative investment strategy, but it is important to understand the tax implications before getting started. As with any investment, it is important to keep detailed records of all expenses and consult with a tax professional if you are unsure about any aspects of the taxation process. By understanding the tax implications of real estate flipping, you can make informed decisions and minimize your tax liability.