The federal government has proposed extending its tax on house flippers to assignment sales, with the 12-month holding period for the flipping rule resetting once the taxpayer who entered the purchase and sale agreement takes ownership of the property.
The announcement was made in the government’s 2022 fall economic statement, released Thursday.
Profits arising from an assignment sale would be deemed to be business income if the rights to purchase a property were assigned after having been owned for less than 12 months.
“This will ensure the residential property flipping rule cannot be bypassed when selling a constructed property simply because a taxpayer held the rights to purchase the property before it was constructed,” the government said in the fall economic statement.
Extending the residential property flipping rule to assignment sales would generate $5 million in tax revenue over the next five years, the government projected.
Under the proposed rule introduced in the 2022 federal budget, an individual who sells a residence within 12 months of acquiring it will be deemed to have flipped it unless they qualify for an exemption due to a “life event,” such as divorce or a death.
Any profit from the sale of residential real estate (including rental property) within a year would be taxed as business income and be ineligible for either the 50% capital gains rate or the principal residence exemption.
The anti-flipping rule proposal, including the extension to assignment sales, would be effective starting Jan. 1, 2023.
The proposed measure, which is still in draft legislation, was introduced to “ensure that investors who flip homes pay their fair share, and play a role in lowering housing prices for Canadians,” the government said in Thursday’s fiscal update.
Legislation passed in June to make all assignment sales in respect of a newly constructed or substantially renovated single unit residential complex or residential condominium unit taxable for GST/HST purposes, effective May 7, 2022.
“Applying GST/HST to assignment sales will provide certainty for all parties involved, and crack down on speculators who may be dishonest in these transactions,” the fiscal update stated.
Canadian home prices are down by about 7% since the February peak and mortgage rates have spiked as the Bank of Canada continues to raise rates. Experts have stated that measures to curb speculation can appear out of step.
“[An anti-flipping rule] still might have some use, but right now flipping does not seem to be an issue,” Mike Moffatt, assistant professor with the Ivey Business School at Western University in London, Ont., told Investment Executive last month. “There’s no liquidity in this market.”
In the 2022 federal budget, the government stated it would proceed with a review of “housing as an asset class to better understand the role of large corporate players in the market,” citing the concern that “concentration of ownership in residential housing” was leading to higher rents and house prices.
The review was not addressed in the fall economic update.