CRA confirms that there are no reorganization continuity rules to avoid triggering a flipped property gain from a disposition upon completion of a reorganization

The remaining answers in English translation have been added to our 2024 APFF Roundtable page.

A "flipped property" essentially refers to a Canadian housing unit (or the right to acquire one), which is owned or held by a taxpayer for less than 365 consecutive days prior to its disposition, subject to a narrow list of exceptions set out in s. 12(13)(b). CRA confirmed that there are no continuity rules for common reorganization transactions, such as amalgamations, s. 88(1) wind-ups or s. 85(1) rollovers, so that such an event or transfer starts the 365-day period running again – so that, for example, it would not help that a housing unit had been held for many years by a predecessor of Amalco, if Amalco promptly disposes of the unit.

When asked whether, for example, a seniors’ residence was a “housing unit” [“un logement”], CRA stated that it was considering the scope of this expression and consulting with Finance.

Since a gain from the disposition of a flipped property is deemed to be from an adventure in the nature of trade, which is included in the definition of "active business carried on by a corporation" in s. 125(7), CRA considers that such gain (realized by a CCPC with fewer than six full-time employees) would be eligible for the small business deduction.

Neal Armstrong. Summaries of 10 October 2024 APFF Roundtable, Q.1 under s. 12(13)(b) and s. 125(7) - active business carried on by a corporation.