The Do’s and Don’ts of Real Estate Flipping in Ontario: What You Need to Know from a Tax Perspective

Flipping real estate in Ontario — whether it's your side hustle or a full-time business — can be profitable, but it also comes with a minefield of tax implications. Missteps can result in unexpected tax bills, HST assessments, and audits from the CRA. At Prasad & Company LLP, we help clients navigate these challenges and structure their activities in a tax-efficient, compliant way. Here’s a breakdown of what to keep in mind — and how we can help.

1. DO Understand the Difference Between Capital Gains and Business Income

One of the most critical distinctions in real estate flipping is whether your profits will be taxed as capital gains (50% taxable) or business income (100% taxable).

• If you buy a property intending to flip it quickly for a profit, CRA will likely consider that business income — regardless of how long you held it.
• If you can prove a long-term intention to hold the property as an investment or residence, capital gains treatment may be possible.

We help assess your facts, draft defensible documentation, and structure your activities to achieve optimal tax treatment.

DON’T assume capital gains treatment just because you held the property for a few months. CRA looks at intention, not just timing.

2. DON’T Misuse the Principal Residence Exemption

Some flippers claim the principal residence exemption (PRE) to shield gains from tax. However, the CRA has become very aggressive about auditing habitual use of the PRE by individuals who buy, move in briefly, then sell for profit.

• If you claim the PRE repeatedly or in suspicious circumstances, CRA may reassess the gain as fully taxable business income and deny the exemption.
• The 2022 and 2023 federal budgets included additional funding to enforce compliance and audit misuse of this exemption.

We can help determine if your use of the PRE is defensible or if it's time to re-think your approach.

3. DO Consider the HST Implications of a Flip

HST is often overlooked in flipping transactions. If you are considered to be carrying on a business, HST may apply even if you didn’t charge it on the sale.

• New homes or significantly renovated homes sold after construction may be subject to HST.
• Even if you don’t sell the property and instead self-occupy, you may face a self-assessment requirement under the HST rules.

If you’re acting as a builder (even a small-scale one), you could be required to:

• Register for HST
• Charge and remit HST on sale
• File special builder’s returns

We help determine whether HST applies, assist with registration and filings, and structure the transaction to minimize exposure.

DON’T assume HST doesn’t apply just because you’re not a builder by profession. CRA’s definition is broader than you might think.

4. DO Account for Land Transfer Tax (LTT)

Every Ontario real estate transaction comes with land transfer tax, and in Toronto, an additional municipal land transfer tax. If you're flipping property through a corporation or trust, or engaging in title transfers before resale, extra care is needed.

• Assignments, bare trust transfers, and beneficial ownership changes can all trigger LTT or complicate your filings.
• LTT planning is especially critical for pre-construction flips.

We help you map out the full transaction to avoid double-taxation or unintended triggers of LTT.

5. DON’T Forget to Report

As of recent years, CRA requires all real estate dispositions to be reported on a T1 — even if it qualifies as a principal residence. Failure to do so can lead to late-filing penalties and reassessments.

• If your real estate activities rise to the level of a business, you may also be required to file T2125 (business income statement) and register for HST.
• Improper or missing reporting can result in audits, reassessments, interest, and penalties.

We ensure you meet all tax filing obligations — whether you're flipping occasionally or operating a full-fledged real estate business.

Planning Ahead is Key

Many flippers come to us after receiving CRA audit letters or facing large tax bills — often after it’s too late to fix the problem. But proactive planning can make all the difference.

At Prasad & Company LLP, we advise individuals, corporations, and investors in the real estate space. Whether you’re planning your first flip or already scaling your portfolio, we can:

• Assess the best tax structure (corporation vs. personal ownership)
• Help you determine capital gains vs. business income treatment
• Register and comply with HST if applicable
• Assist in documentation and reporting to defend your tax position

Ready to Flip Without Flipping Out?

If you’re involved in Ontario real estate flipping — or thinking about it — contact us today. We’ll help you navigate the tax, HST, and legal landscape to minimize surprises and maximize after-tax profit.