Have you ever wondered what the tax differences are between holding a property for rental purposes and flipping houses as a business? Yes! Well good news, we are about to give you some valuable information.

Capital Gain or Business Income? 

If you buy a property, perform some renovations and then quickly sell it for profit, then your gains (business income) are fully taxable and your losses are fully deductible.

However, if your property were generating rental income then the disposition of the property would be considered capital gains or losses.

What’s the Difference – Can I minimize taxes?

Business income is 100% taxable and not entitled for principle residence exemptions, whereas 50% of the capital gains are taxable. However, if a rental investor has claimed capital cost allowance (CCA, also known as depreciation) on their rental property, then they are subject to all past CCA recapture and are taxed in the year the property is sold, in addition to the capital gains tax payable.

All real estate investors want to minimize taxes upon the disposition of investment real estate. One consideration for those who wish to pass down real estate to their children would be to utilize the benefits of an estate freeze. There are methods of locking in the investors deferred capital gains and have the children of the investor accrue any future growth; however this depending on the methodology used in freezing the asset. This is a highly complex area and one should contact a professional for advice. Saying that, and in the end, capital gains will eventually have to be paid one way or another.

We Can Help!

If you’re a real estate investor or a first timer, it pays to have professionals on your side to guide you through the complex matrix of real estate investing.