Tax season has a way of surfacing issues people didn't know they had. For real estate owners, that's increasingly true. The Canada Revenue Agency has made real estate reporting a significant enforcement priority - and several rule changes mean the stakes are higher than they used to be.
Here are three things every property owner should understand before filing this year.
1. Selling Your Principal Residence? Reporting Is Mandatory - Even If No Tax Is Owing
Since the 2016 tax year, any sale of a property that was ever designated as a principal residence must be reported on your income tax return - even if the entire gain is sheltered by the Principal Residence Exemption (PRE).
That 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 when no tax is ultimately owing
Why this matters: Failure to report can trigger penalties. In serious cases, CRA can deny the PRE entirely - though late-filing relief may be available. Not reporting isn't a technical oversight that gets quietly overlooked.
2. The 365-Day Flipping Rule: Short-Term Ownership Can Mean 100% Taxable Income
Effective January 1, 2023, a federal anti-flipping rule changed how gains are treated on residential properties sold within 365 days of purchase.
If you sell a residential property you owned for fewer than 365 consecutive days:
- The profit is deemed to be business income - not a capital gain
- 100% of the profit is taxable (versus the 50% capital gains inclusion rate)
- The Principal Residence Exemption cannot apply
There are limited life-event exceptions - death, divorce or separation, disability, serious illness, employment relocation, and involuntary disposition such as expropriation. Outside of these, short-term ownership automatically changes the tax character of any profit.
What this means in practice: A quick sale you thought might qualify as a capital gain - with a 50% inclusion - may instead be fully taxable business income. The classification is automatic, not discretionary.
3. Bare Trusts: The Quiet Risk Many Owners Don't Realize They Have
A bare trust exists when one person holds legal title to a property, but someone else is the true beneficial owner. This arrangement is more common than most people realize:
- A parent added to title to help a child qualify for a mortgage
- Nominee arrangements
- Joint venture structures
- Developers holding title on behalf of others
Expanded trust reporting rules now require most trusts to file an annual T3 return and disclose beneficial ownership information via Schedule 15. CRA provided administrative relief for bare trusts for the 2023 and 2024 taxation years (unless specifically requested to file), but the reporting regime is expected to apply going forward.
Penalties for failure to file can be significant - in circumstances involving gross negligence, up to the greater of $2,500 or 5% of the highest fair market value of the trust property in the year.
The practical issue: Many people created bare trust arrangements informally - often for mortgage qualification or estate planning - without recognizing them as trusts. If you're on title for property you don't beneficially own, or vice versa, this may apply to you.
What to do if any of this applies to you
Real estate is no longer a simple line item on a tax return. Sales must be reported, short-term gains may be fully taxable, and certain ownership structures carry filing obligations that didn't exist a few years ago.
If you've bought, sold, transferred, or structured property ownership in the last few years, now is the time to confirm everything has been properly reported. Questions about how title is held or how a transaction was structured are worth a conversation with both your accountant and a real estate lawyer before filing.
If any of this connects to a buying or selling decision you're working through, we're always happy to talk it through - no pressure, no commitment.
* This post is for general informational purposes only. The Nagpal Group is a real estate team - not a tax or legal advisory firm. Nothing in this article constitutes legal or tax advice. Tax rules are subject to change. Always consult a qualified accountant, tax professional, or real estate lawyer for advice specific to your situation before making any filing or ownership decisions.
