A recent article in the Financial Post suggests that CRA may not see your real estate investment as a capital gain but rather business income. Taxation-wise, the difference is significant with capital gains income being taxed at 50% and business income being taxed at 100%.
The article spells out how this determination is made:
They include: the nature of the property sold, the length of time the taxpayer owned the property, the frequency and number of transactions carried out by the taxpayer, the improvements made by the taxpayer to the property, the circumstances surrounding the sale of the property and the taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.
So how you conduct your real estate affairs will largely determine at which rate you are taxed. For instance, if you are buying properties, doing quick renovations and then turning around and flipping them in the same year, you’ll likely be seen as conducting a business and therefore be taxed at business income levels.
Of course your principal residence may still appreciate in value without incurring tax on any profit made when it comes time to sell. The rest of your portfolio, when sold, will be considered either a capital gain or business income and the implications of that are very different as far as CRA is concerned.