Can House Flipping Create Tax Implications for You?
You may not be familiar with the term house flipping, but if you have purchased a second residence and sell it within a specific time frame then it may become something that you are soon going to experience because of its potential tax implications.
Most probably you realize that if you do sell this second home and make a profit that you could be subject to paying tax on the capital gain. It could go beyond this however, if you do not live in the home for at least a year and then decide to sell it.
In some cases although presently it is still a rare circumstance, the CRA may class the sale of your second home that didn’t meet the resident criteria as a business, and not just a capital gain.
It really is important when you are making a purchase of a second home as to what your intentions really are. With the great influx of condo buildings that are now taking place throughout the Toronto area, many people are buying these before they are even built. Some are doing so with the hopes of perhaps downsizing from their present residence and moving into the condo atmosphere. Whereas, others are buying this type of living quarters and looking at it as being a great investment, to make some extra money. This is where you can end up being classed as being in the business of selling real estate and not just looking at capital gains.
It really is important that you do your research prior to any of property Investments to see what type of tax circumstance it may place you in. This is where relying on the services and expertise of a quality Toronto accountant who is well versed in property transactions in respect to tax implications. The CRA rules are very clear as to what a principal residence is comprised of and that you must live in this residence for at least one year before you decide to sell it.
Your intention may be to purchase this property to rent it out to stimulate extra income. Again this is going to put you into another tax area that you also need to research carefully. The safest measure that you can take when purchasing a property is to document your intentions, and fully understand what the CRA rulings are concerning your proposed property transaction.