There have been media reports that the Canada Revenue Agency is scrutinizing condo sales a little more closely, especially in the Greater Toronto Area. Although every taxpayer receives a capital gains exemption on the principal residence, the intent of the purchase needs to be considered. Just because you buy a condo and live in it for a short period of time does not mean you can say it is your principal residence.
If the condo purchase is considered an adventure or concern in the nature of trade — to use the tax terminology — the property cannot be your principal residence even if you lived in it briefly. The principal residence exemption may only be claimed in respect of a capital property. For tax purposes, a flipped condo is not capital property; it is inventory.
The recent case of Sangha v. The Queen 2013 TCC 69 confirmed this line of reasoning. In this case, two friends who had not owned property before bought a vacant lot in Vancouver and built a house on it. Both families moved some furniture and personal belongings into the house and briefly occupied it before selling it for a substantial profit. The court held that the friends’ intention was always to sell the property for profit, so it was considered an adventure in the nature of trade. The court determined that they did not live in the property long enough to qualify for the principal residence exemption.
The fact that a property has not been occupied prior to its sale may be relevant in classifying it as inventory as opposed to a capital property, but individual cases can be made. For example: a taxpayer purchases a condo as a single person but becomes engaged by the time the condo is ready to be occupied, and no longer wishes to occupy it for very long. The original intent was to live in the condo but life circumstances changed, and the owner may be able to make a case. In this case the property cannot be designated as a principal residence since it was never occupied. However, the fact that it is a capital property, as opposed to inventory, will mean that the gain is only 50% taxable.
But if you are thinking of taking advantage of the principal residence exemption to make a quick profit on a condo flip, you may find a CRA auditor unimpressed with your explanation.