The Capital Gains Tax Trap: What Accountants & Finance Pros Must Know About Residential Real Estate in 2025!

The real estate market is evolving, and so are the tax implications that accountants and finance professionals need to keep on their radar. Capital gains on residential real estate have become a hot topic, with increasing scrutiny from tax authorities, stricter reporting requirements, and potential legislative changes looming on the horizon. If you’re advising clients on real estate transactions, missing out on key capital gains tax (CGT) rules could cost them (and you) big time!

Here’s what you MUST know to stay ahead of the game.

The Primary Residence Exemption Is Not Always Guaranteed

Many homeowners assume that selling their primary residence is 100% tax-free—but that’s not always the case.

• Partial exemption risks: If a home was rented out for a period or used for business purposes, only a portion of the capital gains might be exempt.

• Flipping properties? The CRA is watching: If a client frequently buys and sells homes claiming the primary residence exemption, they could be flagged as a business activity—leading to full taxation as business income, NOT capital gains.

Pro Tip: Ensure clients have solid documentation proving their residence status, including utility bills, driver’s licenses, and voter registration.

The New Anti-Flipping Rules Could Spell Trouble

The government is cracking down on short-term home sales. Under the anti-flipping tax rule, homes sold within 12 months of purchase (unless due to special circumstances like divorce or job relocation) are fully taxed as business income.

What This Means for Accountants & Finance Professionals:

• No 50% capital gains inclusion—100% of the profit is taxed as business income.

• Even unintentional flips (like a homeowner selling due to unforeseen circumstances) could trigger a hefty tax bill.

• Increased CRA audits on property transactions.

Action Step: Advise clients against quick flips unless they qualify for an exemption under CRA guidelines.

The CRA’s Focus on Undeclared Capital Gains

With enhanced data-sharing between banks, land registries, and tax authorities, undeclared capital gains are harder to hide.

• The CRA now cross-checks real estate transactions against tax filings, looking for unreported gains.

• Failure to report capital gains could lead to penalties, interest, and reassessments.

Stay Compliant: Remind clients to properly report any real estate sales and maintain accurate records of purchase price, legal fees, and renovation costs.

The Potential Increase in Capital Gains Inclusion Rate

There’s growing speculation that the government could raise the capital gains inclusion rate from 50% to 66.67% or even 75% to increase tax revenue.

What This Could Mean:

• Higher tax bills for clients selling investment properties.

• Increased urgency for tax planning—clients may want to sell sooner rather than later to lock in the lower inclusion rate.

Advisory Tip: Keep an eye on federal budget announcements and advise clients accordingly.

RRSP & Home Equity Strategies to Offset Gains

Savvy investors can mitigate capital gains tax through strategic planning:

First-Time Home Buyer Incentives: Clients using RRSP withdrawals under the Home Buyers' Plan (HBP) can leverage tax-free funds for down payments. Capital Gains

Offsetting: Losses from other investments can be used to reduce taxable gains. Family

Transfers & Trusts: Gifting or transferring real estate to family members may defer taxes, but be wary of attribution rules.

Optimize Strategies: Encourage proactive tax planning instead of reactive scrambling.

Final Thoughts: Don’t Let Clients Get Caught Off Guard!

With tighter tax enforcement, new anti-flipping rules, and potential increases in capital gains taxes, accountants and finance professionals must be proactive in guiding clients through real estate transactions.

Next Steps: Review your clients’ real estate portfolios NOW. Advise them on proper documentation and exemption rules. Stay updated on tax policy changes.

The tax landscape is shifting—make sure you and your clients aren’t left behind!

Don’t wait until it’s too late! If your clients are considering selling a property, the time to act is now. Get in touch with Walson Consulting Inc. today for a free quote and ensure they’re making the right financial moves before tax season hits!

Call us today at 905-233-2420 or visit www.walsonconsulting.com to get your free no obligation quote.

The tax clock is ticking—let’s get ahead of it together! 

What’s your biggest concern about capital gains tax in 2025? Drop a comment below!