Capital Gains and flipping rule Canada

[billgallagher201]

My client purchased a principal residence in 2021 and sold it in June 2023. She then purchased another principal residence in June 2023 and sold it Dec 1st 2023.

She had a family situation that required her to move from her one bedroom condominium which is the second principal residence, to another principal residence. This then creates a decision on whether or not the second property is a flipped property as it was purchased and sold in less than 365 days. (held from June to Dec 2023).

The sell costs were properly indicated on forms T2091 and T2091(2), but there is no place on the form to show you have held the property less than 365 days on the T2091(2). It must default to 1 year or an error report appears, when you go to net file.

Schedule 3 was filled in on line 17900 item 3 indicating that these properties were “her principal residences for all or some of the years she owned them”. Indicating item 3 requires you to go back to T2091 and T2091(2) and complete section (b) and when filled in indicates no Capital Gains as shown by the computation. i.e. the first T2091 was held for 2 years and the second T2091(2) was by default 1 year, even though if was only held for 5 months.

Line 17905 was marked yes “did you sell a property in 2023 that you owned for less than 365 days”, line 17906 was marked item 2 indicating a life changing situation required her to sell, thus her second principal residence is not considered a flipped property, but it is still exposed to a 50% capital gain due to the new flipping rule.

My question is " what section i.e.1 to 10 on Schedule 3 do I use to report the capital gain from the sale of the second residence, it looks like either section 5 or 8". I do have all the required information to record the capital gain.

It would have been nice if CRA or the soft wear providers would have supplied decent examples on how to properly complete the capital gain for this type of situation, through both the T2091/2’s and Schedule 3.

I would appreciate any comments and how to proceed in completing the Schedule 3, and or how to correct any of the preceding information so that Turbo Tax  would allow me to proceed to net file without any errors.

[TurboTaxBrenda · Accepted solution]

1- You sold two homes (both are principal residences)
2- For the first one that was owned since 2021, you will complete the T2091 for it, years or acquisition is 3 (you have to apply the +1 rule to the number of years owned)
3- the 2ns property is a principal residence as well...if you answered yes to line 17905 of Schedule 3, and then checked one of the life event boxes --> then it is not a flipping property:
 

• you need to fill another T2091, years of acquisition is 1 (again because of the +1 rule, it will never be less than one year)
• you need to fill section 8 since this is considered a personal property and the capital gain rule will apply where you have to pay taxes on 50% of the capital gain.
• don't fill section 5 of Schedule 3 otherwise it will double the taxable amount

Thank you for choosing TurboTax.

[billgallagher201]

Benda, just a very big thank-you.

I have spent a large number of hours trying to understand how to properly file the correct paperwork on this particular tax return. 

Your response really let's me relax, and gives me confidence that the correct information will be submitted now, as it was initially done incorrectly on both the original filing, and a subsequent refile, which caused Revenue Canada to request more information.

I can now submit to Revenue Canada their request for a revised Schedule 3, which I now know  will be done properly and exactly as you explained.

Really appreciate your expertise. I should have contacted the Community in the first place. I have been a Turbo Tax user for over ten years, and will certainly continue.

If you wish feel free to use this email to promote Turbo Tax.

[TurboImpotBrenda1]

Thank you for your kind words, we appreciate and value your feedback. 

We are happy we can help.

Thank you for being a loyal TurboTax customer.