Property Flipping Tax in Canada: Is Your Sale Subject to the 365-Day Rule?

Selling a house, cottage or rental property soon after buying it can have significant tax consequences. Since January 1, 2023, federal and Québec rules have generally treated the profit from certain residential properties sold within 365 consecutive days as business income, unless a qualifying exception applies.

Here is how the rule works and what to check before selling.

What is a flipped property?

For tax purposes, a residential property located in Canada may be considered a flipped property if you sell it after owning it for less than 365 consecutive days. The rule can apply to a home, cottage or rental property, as well as a right to acquire a residential property. It generally applies even if you did not buy the property with the intention of reselling it quickly.

When does an exception apply?

A sale within 365 days may fall outside the property flipping rule if it occurs because of, or in anticipation of, a qualifying life event. These include:

• the death of the owner or a related person;

• a person joining the owner’s household;

• the breakdown of a marriage or common-law partnership;

• a serious illness or disability;

• an eligible relocation;

• the involuntary loss of employment of the owner or their spouse or common-law partner;

• insolvency; or

• the destruction or expropriation of the property.

An exception removes the automatic treatment under the 365-day rule; it does not automatically make the profit tax-free. The sale must still be assessed under the usual rules to determine whether it produces business income, a capital gain or a gain eligible for the principal residence exemption.

What are the tax consequences of flipping a property?

If the rule applies, the profit is treated as business income. This has two major consequences:

1. The full profit is included in income. The capital gains inclusion rate does not apply.

2. The principal residence exemption cannot shelter the profit, even if you lived in the property.

A loss from the sale of a flipped property is generally deemed to be nil under this rule, so it cannot be claimed as a business loss.

Example: selling a cottage after six months

In March 2024, Isabelle buys a cottage in the Laurentians for $250,000. Six months later, she accepts an offer of $350,000. No qualifying life event prompted the sale.

In this simplified example, her $100,000 profit is treated as business income because she sold the property within 365 days. The full amount is included in income, subject to the calculation of the actual profit and applicable expenses.

Now suppose Isabelle sells the same property in September 2025 instead. The 365-day property flipping rule would no longer apply automatically. That does not guarantee capital gains treatment: the nature of her activities and the circumstances of the purchase and sale would still have to be considered. If the $100,000 profit were properly treated as a capital gain, the one-half inclusion rate would result in a $50,000 taxable capital gain. If the property qualified as her principal residence, the exemption would require a separate analysis and the appropriate reporting.

Review the tax implications before you sell

A sale before the 365-day mark can turn an expected capital gain into fully taxable business income. A qualifying life event may change the result, but the reason for the sale and its supporting documents matter.

If you are considering selling a property soon after acquiring it, Mallette’s tax professionals can help you assess how the federal and Québec rules apply to your situation.