The new “flipped property” rules in subsection 12(12) to (14) appear to apply in perverse ways.
- Suppose a taxpayer transfers a home to a corporation on a rollover basis and the corporation then sells the home within the “bright line time” (365 days). It appears the entire gain would be treated as ordinary income.
- Similarly, a beneficiary of a trust who receives a home from the trust and then sells the home right away would appear to be caught by the rules.
- Suppose a parent corporation acquires a home from subco on a vertical amalgamation or winding-up. If the parent sells the home within the bright line time, it would likely be caught by the rules.
- The rules might apply to a transfer of a home from one spouse to another followed by a quick sale of the home.
- It appears the rules apply to an estate that sells a home where a spouse acts as an executor. The spouse is no longer related to the deceased, which means the estate isn’t either, and so the exception in paragraph 12(13)(a) would not apply.
Evan Crocker and Kenneth Keung “Related-Party Transfers and the Flipped-Property Rules” Tax for the Owner-Manager 23:2 (April 2023)
