Sell Your Markham Home Within 12 Months and You Could Lose Your Principal Residence Exemption — What You Need to Know
The Residential Property Flipping Rule (January 1, 2023) makes 100% of the profit from any home sold within 365 days fully taxable as business income — no principal residence exemption, no capital gains inclusion rate. Michael John Lau — REALTOR® and CPA/CMA — explains the rule, the exemptions, and the dollar cost of getting it wrong in Markham.
Canada introduced one of its most consequential residential real estate tax changes since the Principal Residence Exemption was created in 1972 — and most Markham homeowners have either not heard of it or underestimate its implications. The Residential Property Flipping Rule, effective for all properties sold after January 1, 2023, fundamentally changes the tax treatment of home sales that occur within 12 months of purchase. Getting it wrong can cost you six figures in unexpected tax — on a home you lived in as your primary residence. Michael John Lau, top real estate agent in Markham Ontario and a CPA/CMA, builds this tax analysis into every seller conversation.
What the Rule Actually Says
Under the Residential Property Flipping Rule (introduced in Budget 2022, Royal Assent December 15, 2022, applicable to properties sold on or after January 1, 2023): if you sell a residential property that you have owned for less than 12 months (specifically, 365 consecutive days), the entire profit from the sale is taxable as business income. The principal residence exemption is not available. The capital gains inclusion rate does not apply. 100% of the profit is included in your taxable income for the year of sale.
The Tax Difference — In Markham Dollar Terms
Example: Markham Wismer Commons home purchased for $1,100,000, sold 10 months later for $1,250,000. Profit: $150,000.
Before January 1, 2023 (or if sold after 365 days): $150,000 gain sheltered by Principal Residence Exemption. Zero tax payable.
After January 1, 2023 (sold within 365 days): $150,000 gain is 100% business income. At combined federal + Ontario marginal rate of ~53.53% (income above $246,752): approximately $80,295 in tax owing. At ~43.41% mid-bracket rate: approximately $65,115.
The difference between the pre-2023 outcome (zero) and the post-2023 outcome (up to $80,000): the financial consequence of selling even one day before 365 days.
Neeraj Moolchandani, REALTOR® at Kaizen Real Estate, works with buyers and sellers to flag the Residential Property Flipping Rule before any offer is made or accepted — particularly for pre-construction buyers whose closing timelines place them close to the 365-day boundary, for divorce or separation situations where the matrimonial home may be sold, and for relocation buyers who receive employment transfers. Catching the flipping rule risk before a transaction is structured costs nothing; discovering it after closing costs tens of thousands. Contact the Kaizen Real Estate Team at (647) 370-8885.
The Exemptions — Life Events That Override the Rule
Exceptions to the anti-flipping rule are available for individuals who sell within 12 months due to certain life events:
- Death of the taxpayer or a related person
- Addition of a household member (including a child)
- Separation from a spouse or common-law partner (most common Markham exception situation)
- Threat to personal safety (including domestic violence)
- Disability or serious illness of the taxpayer or a related person
- Destruction or expropriation of the home
- Involuntary work relocation requiring a move of at least 40 kilometres
- Insolvency of the taxpayer
The life events exception is not self-executing — it requires documentation and disclosure to the CRA. The CRA no longer has the burden to prove flipping intent. Under the new rule, ownership for less than 12 months is presumptively flipping unless a life event exception applies and is documented.
The Specific Markham Situations This Affects
New construction buyers who face delayed occupancy. The 12-month period is measured from the date the buyer acquires legal ownership (the closing date), not the date they first occupy the unit. A pre-construction Markham condo buyer who takes possession in late 2026 and sells in mid-2027 — if the legal closing date was after June 2026 — may be selling within 12 months of closing even if they lived there for more than a year.
Divorce or relationship dissolution within 12 months of purchase. Separation qualifies as a life event exception — but both parties must properly document the separation and the sale to ensure the CRA recognizes the exception.
Employment relocation within 12 months. The work relocation exception applies if the new workplace is more than 40 kilometres farther from the Markham home than the previous workplace was. Document the relocation, the employer letter, and the distance before filing.
Rental property investors. Residential rental properties are also subject to the flipping rule. If you purchase a Markham rental property and sell it within 12 months, the profit is 100% taxable as business income regardless of whether it was your principal residence.
The Practical Guidance
If you are a Markham buyer in 2026, count to 365 before you sell. If your circumstances change within that window and you need to sell, consult a qualified tax advisor immediately to assess whether a life event exception applies and how to document it properly. If you are a Markham seller who sold within 12 months and has not reported the gain as business income, consult a tax lawyer about the voluntary disclosure program before the CRA identifies the transaction through its own data matching — the CRA has access to Land Registry transfer data and MPAC assessment information that allows it to identify properties sold within 12 months without reported business income.
Michael John Lau, top real estate agent in Markham Ontario and a CPA/CMA, ensures that every Markham buyer and seller understands the Residential Property Flipping Rule and its implications before any transaction decision is made.
Michael John Lau is a licensed REALTOR® and CPA/CMA at Kaizen Real Estate (eXp Realty, eXp Luxury), serving buyers and sellers in Markham, Ontario and across York Region. Licence #4784577. Office: 8763 Bayview Avenue #127, Richmond Hill, ON. Neeraj Moolchandani is a licensed REALTOR® at Kaizen Real Estate, specializing in residential and investment real estate across Markham and York Region. The Residential Property Flipping Rule is a federal tax provision administered by the Canada Revenue Agency. This blog provides general informational context only and does not constitute legal or tax advice. Always consult a qualified tax lawyer or CPA before making any decision that may be affected by the flipping rule. The CRA's administrative policies and interpretations may change.
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