The CRA considers whether the income reported on tax returns is sufficient to support a taxpayer’s lifestyle, including the cost and maintenance of real estate.

The CRA can establish correlations between a taxpayer’s reported income and their lifestyle. The acquisition of expensive assets, such as a high-end home, without an obvious income source, can be an indicator of potential unreported income on income tax returns.

People who buy and resell homes within a short period for profit are often engaged in property flipping. The CRA uses third-party data to identify and analyze such transactions and has found that some property flips are either not reported or reported incorrectly. The profits from flipping real estate are generally fully taxable as business income.

There are three main categories of individuals or entities engaged in property flipping:

Professional contractors or renovators – These are individuals or entities that buy homes with the intention of renovating and then selling them for a profit. In some cases, this may involve significant work such as demolition and rebuilding.

Speculators or intermediary investors – These are individuals or entities who purchase pre-construction properties with the goal of reselling them rather than living in them. They may assign the rights in the purchase contract to another buyer, and the same property may be assigned multiple times by different purchasers before the final sale is completed. This practice, known as shadow flipping, can occur with the original seller being aware that their property has changed hands until the closing date.

Individual renovators – These individuals buy a home, renovate it, live in it for a short period of time, and then sell it for profit. They often claim the principal residence exemption when selling the home. In such cases, GST/HST may still apply through a self-assessment if the home was newly built or substantially renovated mainly to be sold for profit.

If you make a profit on the sale of real estate, you may realize a capital gain. All capital gains, exempt or not, must be reported on Schedule 3, Capital Gains of the T1 Income Tax and Benefit Return. If you own more than one home at the same time, only one of them can be designated for the principal residence capital gains exemption for a particular tax year when you sell.

More information concerning the principal residence exemption, including designation of a property as a principal residence can be found in Income Tax Folio S1-F3-C2, Principal Residence.

A non-resident who owns property in Canada must pay tax on any taxable capital gain when selling it and generally cannot claim the principal residence exemption.

It is the responsibility of the buyer of the property to know whether the seller is a Canadian resident or a non-resident. Usually, the notaries or real estate lawyers who complete the legal documents associated with real estate transactions have the responsibility to complete these verifications.

If you buy a property from a non-resident seller, you should ask the seller for a certificate of compliance from the CRA, before releasing the purchase funds. Without this certificate, you may be responsible for paying the CRA the income tax the seller owes on the sale and in some cases, the GST/HST. More information regarding the sale of taxable Canadian property by non-residents of Canada is available in the CRA’s Information Circular Procedures Concerning the Disposition of Taxable Canadian Property by Non-Residents of Canada – Section 116.

An individual’s residency status is critical in establishing their Canadian tax liability. Residents of Canada must report their worldwide income from all sources to the CRA, whereas Non-residents must only report their income from Canadian sources.

An individual’s residency status is determined on a case-by-case basis, considering many facts which include:

• Residential ties in Canada
• Purpose and duration of visits outside Canada
• Social and economic ties outside Canada

Having a dwelling place located in Canada will almost always constitute significant ties with Canada.

Residency status should not be confused with citizenship. For example, a citizen of a country other than Canada who has significant residential ties in Canada may be deemed to be a resident of Canada.

For more information, go to Income Tax Folio S5-F1-C1, Determining an Individual's Residence Status.

Generally, the builder of a new or substantially-renovated home must collect GST/HST when the home is sold and remit that tax to the CRA.

If a builder leases or rents out a new or substantially-renovated home, they are deemed to have sold the home to themselves. GST/HST is payable immediately on the home’s fair market value, including the value of the land, and the builder must remit this tax to the CRA. Additional information, including exceptions to this rule, can be found in the CRA’s publication, GST/HST memorandum 19.2.3 Residential Real Property – Deemed Supplies.

In most cases, the sale of used housing that does not undergo a substantial renovation, is exempt from GST/HST.

If you buy or build a new home, or significantly renovate an existing home, you may be entitled to a GST/HST rebate if you either:

1. Live in it as your primary place of residence (New Housing Rebate); or
2. You lease or rent it (New Residential Rental Property Rebate).

However, if your intention is to flip the property you may not be eligible for a rebate and you must charge and remit GST/HST on the sale of the property.

One of the main conditions for the new housing rebate is that the house you buy or build is intended to be, and is used as, the primary place of residence for you or your relative. If you buy or build the home to rent it out, it must be used as the primary place of residence of the tenant or the tenant’s relative.

If you buy or build a new house in Canada, but your primary place of residence is outside Canada, then your house in Canada would be a secondary place of residence and would not qualify for the new housing rebate.

Developers are considered persons—including individuals, corporations, partnerships, and trusts— who acquire vacant land or existing constructed real properties (to be demolished) and sell the developed land or parcels to others. Land development is different from construction or housebuilding, although some developers also manage the construction process or engage in housebuilding. Land developers work with different counterparts along each step of this process. This could include municipalities and city planners, surveyors, inspectors, contractors, lawyers, and others. Land development generally has significant income tax and GST/HST implications.

All sales of real or immovable property in Canada,—including the sale of a principal residence—must be reported to the CRA for 2016 and later tax years, even if there is no capital gain or the entire gain is exempt. The designation of a property as the principal residence is determined by completing Form T2091 (IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust) and is reported on Schedule 3. For the sale of a principal residence, the CRA will allow the principal residence exemption only if the individual reports the disposition and designation of their principal residence on their income tax return.

An individual with a license, permit or registration issued under provincial or territorial legislation that authorizes them to act on behalf of others with respect to the brokerage business for purchase, exchange, sale or rental of houses, apartments, commercial buildings and land. Realtors are included in our risk-assessed populations, due to the high level of transactions inherent in a group whose main revenue stream is generated through the sale of real estate.