With tax season underway, it’s a critical time to review your real estate holdings and transactions. Real estate reporting has become a major enforcement focus for the Canada Revenue Agency (CRA), and recent rule changes have significantly increased compliance obligations.
Here are three real estate tax issues every property owner should understand right now.
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Selling Your Principal Residence? Reporting Is Mandatory — Even If No Tax Is Owing
Since the 2016 tax year, every disposition of a property that was designated at any time as a principal residence must be reported on your income tax return.
This means:
• The sale must be reported on Schedule 3
• Form T2091 (Designation of a Property as a Principal Residence) must be completed
• This applies even if the gain is fully exempt under the Principal Residence Exemption (PRE)
Why this matters:
Failure to report can trigger penalties — and in serious cases, CRA can deny the PRE entirely unless late-filing relief is granted.
Dig deeper:
CRA — Principal Residence and Reporting Requirements
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CRA — Schedule 3 and T2091
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The 365-Day Flipping Rule: Short-Term Ownership Can Mean 100% Taxable Income
Effective for property sales on or after January 1, 2023, a new anti-flipping rule applies to residential property.
If you sell a residential property that you owned for less than 365 consecutive days:
• The profit is deemed to be business income
• 100% of the profit is taxable
• The Principal Residence Exemption cannot apply
• The 50% capital gains inclusion rate does not apply
There are limited life-event exceptions, including:
• death
• divorce or separation
• disability
• serious illness
• employment relocation
• involuntary disposition (e.g., expropriation)
Why this matters:
Short-term ownership can now automatically convert what you thought was a capital gain into fully taxable business income.
Dig deeper:
CRA — Property Flipping Rule
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Bare Trusts: The Quiet Real Estate Risk Many Owners Don’t Realize They Have
A bare trust exists where one person holds legal title to property but another person is the true beneficial owner.
Common examples include:
• parents added to title for mortgage qualification
• nominee arrangements
• joint venture structures
• developers holding title for others
Expanded trust reporting rules now require most trusts to file an annual T3 return and disclose beneficial ownership information (Schedule 15).
Although CRA has provided administrative relief for bare trusts for the 2023 and 2024 taxation years (unless specifically requested to file), the reporting regime is expected to apply going forward.
Penalties for failure to file can be significant — including up to the greater of $2,500 or 5% of the highest fair market value of trust property in certain circumstances involving gross negligence.
Why this matters:
Many real estate owners unintentionally create bare trust arrangements. If reporting applies and is missed, the penalties can be severe.
Dig deeper:
CRA — Trust Reporting Rules
https:/
Bottom line:
Real estate is no longer a “simple” line item on your tax return. Sales must be reported, short-term flips are fully taxable, and trust structures are under enhanced scrutiny.
If you have bought, sold, transferred, or structured property ownership in the last few years, this is the time to ensure everything has been properly reported.
As always, if a transaction intersects with title, ownership structure, or transfer planning, we’re happy to help you understand the legal implications before they become tax problems.
Wishing you a smooth and compliant tax season ahead.