TaxMatters@EY – May 2025

Kelsey Horning, Toronto, and Gael Melville, Vancouver

Over the last number of years, the sharing and gig economies, collectively called the platform economy, have grown and become an important source of income for many people. In response, the Canadian government has introduced reporting requirements for platform operators. Whether or not the reporting requirements apply in your situation, make sure you’re aware of your tax obligations if you earn income from the platform economy.

Overview of the sharing and gig economy

The sharing economy means earning revenue from the use or sharing of personal assets. This includes activities like short-term vacation rentals or ride-share driving.

The gig economy refers to freelance work or short-term contracts for services. This includes activities such as completing work through sites allowing clients to hire for specific tasks. For example, a client may hire a graphic designer through a freelance work platform to design a logo for the client. It would also include platform-facilitated food delivery.

The platform economy is not limited to income earned through commonly known or well-established platforms, so you need to carefully consider whether an activity is part of the platform economy. Although the focus of this article is income tax, you should also consider other tax implications, for example whether you may be required to register for GST/HST.

Note that, while they’re not the focus of this article, peer-to-peer sellers and social media influencers should also carefully consider the tax implications of the income from those activities.

Reporting obligations

If you earn business income from the platform economy as an individual, not through a corporation, you must file your T1 return of income by June 15 of the year following the taxation year. If you earned that income through a digital platform that’s subject to the reporting rules for digital platform operators, you may receive an annual information return from that platform operator summarizing your activities. This return is new for 2024 and later calendar years. The platform operator also provides the same information to the CRA. The return includes your contact and identification information as well as information about your activity on the platform.

Activity information includes:

• The amount you were paid for activities covered by the rules¹
  
  
• Any fees, commissions or taxes the platform operator charged or withheld
  
  
• If you rented real estate:
  
  • The address of the property
    
    
  • The number of days the property was rented
    
    
  • The type of property listing
    
    
  • The land registration number, where available

The information return requirement does not apply in certain situations. For example, a seller who has fewer than 30 relevant activities and total consideration of less than $2,800 during the reporting period is an excluded seller and the platform operator does not have to report the seller’s activities.

However, exclusion from the information reporting requirements does not mean that the seller’s income is excluded from taxation and compliance obligations. If you receive income from the platform economy, ensure that you comply with your filing obligations regardless of whether you receive an information return or other paperwork from the platform operator.

Generally, reporting platform operators must file the information return by January 31 of the following year. However, the CRA has provided a temporary waiver of late-filing penalties, allowing platform operators to file information returns for 2024 by July 31, 2025 without penalty. As a result, you may experience a delay in receiving your copy of the information return for 2024 and may even receive it after the deadline for filing your own T1 return.

Conclusion

The CRA is likely to review the information received from digital platform operators to verify compliance. However, as mentioned, you must report your business income earned via a digital platform even if the digital platform operator does not provide you with an information return.

The CRA also has an area on its website dedicated to taxes and the platform economy that provides useful information and demonstrates the importance of this area.

If you earn income from the platform economy, make sure you fulfill your tax obligations and consult with a tax advisor if you need more guidance.

Lucie Champagne, Toronto

The Federal Court of Appeal (FCA) recently issued its decision in 1351231 Ontario Inc. v The King, 2025 FCA 53, confirming the Tax Court of Canada’s determination that the sale of a condominium that was being rented through short-term leases on an online rental platform was subject to GST/HST.

The issue before the Tax Court of Canada was whether the condominium sale was subject to GST on the basis that it was not considered a residential complex, as it was similar to a motel, hotel, inn, boarding house, lodging house or “similar premises,” all of which are excluded from the definition of residential complex and therefore subject to GST on a sale.

We covered Tax Court’s decision in detail in the June 2024 edition of TaxMatters@EY.

The FCA’s decision is a reminder for owners of real property to carefully assess both the income tax and GST/HST implications of offering a property as a short-term rental on a digital platform.

As we previously noted in our June 2024 edition, as the rules around real estate continue to evolve, it’s more important than ever to do your research or seek professional advice when considering the purchase of residential property, particularly for investment as a rental property.

Krista Fox and Alan Roth, Toronto

The 2022 federal budget introduced residential property-flipping rules to ensure that profits from flipping residential real estate located in Canada are excluded from capital gains treatment, and are instead subject to full taxation, by recharacterizing the capital gains as business income.

These rules are applicable to dispositions occurring after 2022. We discussed these and other recent federal measures aimed at tackling housing affordability in “Focus on Housing” in the February 2023 edition of TaxMatters@EY: Family Wealth Edition.

This article provides an update on recent developments, specifically by noting comments the CRA made on the application of the rules to certain corporate property transfers, on the determination of the date of property acquisition for purposes of the rules, and on the interaction of the change-in-use rules with the residential property-flipping rules.

Background

A taxpayer’s flipped property is defined in the Income Tax Act (the Act) as a housing unit in Canada — other than a property that is inventory — that was owned (or held, in the case of a right to acquire residential property with respect to an assignment sale) by a taxpayer for fewer than 365 consecutive days prior to its disposition, unless the disposition occurred as the result of one or more specific life events , such as death, marital breakdown, serious illness, disability or insolvency.

If a housing unit is a flipped property, any gain on its disposition is fully taxed as business income and is not eligible for the principal residence exemption. If the disposition results in a loss, it is treated as a denied business loss.¹

Corporate property transfers

In response to similar questions posed at the 2024 Canadian Tax Foundation’s national conference (CRA document 2024-1037751C6) and the 2024 Association de planification fiscale et financière (APFF) conference (CRA document 2024-1028361C6), the CRA commented on the application of the flipped property rules in a series of scenarios in which a Canadian residential rental property owned by a corporation is transferred to another corporation in January on an amalgamation or a wind-up, or by a tax-deferred rollover under section 85 of the Act or as a sale at fair market value, before being subsequently disposed of in December of the same year.

The CRA stated that for purposes of the flipped property rules, a taxpayer’s holding period in respect of a housing unit begins when the taxpayer becomes the owner of the unit. An amalgamated corporation is deemed to be a new corporation under the Act, and the new corporation is deemed to become the owner of property owned by the predecessor corporations. As such, if an amalgamated corporation holds the transferred property for fewer than 365 consecutive days prior to its subsequent disposition, as in the outlined amalgamation scenario, the flipped property rules may apply, provided all other conditions are met.

With respect to the winding-up of a subsidiary into a parent corporation, the CRA similarly determined that the time the parent receives the subsidiary’s distributed property, and the subsidiary is deemed to have disposed of the property under the Act, generally corresponds to the time the parent begins to hold the property. Therefore, in such a situation, if the parent holds the property for fewer than 365 consecutive days prior to its subsequent disposition, the flipped property rules may apply, as in the outlined wind-up scenario.

The CRA indicated that the flipped property rules do not include a continuity of ownership rule if property is acquired from a related or non-arm’s-length person under a section 85 tax-deferred rollover. As a result, a property is considered to be acquired by the transferee at the time of the rollover. Therefore, the flipped property rules may apply if the transferee then holds the property for fewer than 365 consecutive days prior to a subsequent disposition, as in the outlined scenario.

For a sale of property from one corporation to a related corporation at fair market value, the CRA similarly noted that the flipped property rules provide no exception or continuity rule for such a transfer.

In addition, the CRA confirmed that for a Canadian-controlled private corporation, the business income arising from the disposition of a flipped property may constitute income from an active business — including an adventure or concern in the nature of trade — eligible for the small business deduction, provided all the relevant conditions under the Act are met.

However, the CRA indicated that depending on the circumstances, it could consider applying the general anti-avoidance rule under the various scenarios provided if one of the main purposes of a transaction was to obtain a tax benefit to which a taxpayer would not otherwise be entitled.

Finally, the CRA noted that even if the residential property-flipping rules are not applicable in a particular scenario, the question of whether a disposition of property results in business income or a capital gain can only be determined by examining the facts and circumstances of a particular situation.

Determination of property acquisition date

In another question posed at the 2024 APFF conference (CRA document 2024-1027801C6), the CRA was asked how a taxpayer’s date of acquisition of a housing unit is determined for purposes of the property-flipping rules in a situation where the taxpayer builds, causes to be built or replaces an existing dwelling.

It was noted that for purposes of the home buyers’ plan and the first home savings account, the CRA’s position has been that the date of acquisition of a housing unit is the date the property becomes habitable — for example, when it has running water, electricity, heating, a functional bathroom. 

The CRA confirmed that generally when a taxpayer builds, causes to be built, or replaces a housing unit on land they own, the date ownership begins for purposes of the property-flipping rules is the date that the unit becomes habitable. The CRA also noted that the timing of a housing unit’s habitability is a question of fact and must be assessed by considering all the facts and circumstances of a specific situation.

Change-in-use rules

Finally, in another question posed at the 2024 APFF conference (CRA document 2024-1027831C6), the CRA provided its views on the interaction of the change-in-use rules under section 45 of the Act with the residential property-flipping rules.²

In the scenario provided, in June 2024, a taxpayer decides to rent out a residence they had owned and used for personal purposes for many years. The taxpayer did not make a subsection 45(2) election to deem there to be no change in use, so the change-in-use rules applied to trigger a deemed disposition of the property.

Less than a year later, in April 2025, the taxpayer decides to sell the residence after receiving an attractive offer. The CRA was asked whether the deemed disposition and reacquisition on the change in use would result in the application of the residential property-flipping rules when the property is sold, considering that the taxpayer owned the housing unit for fewer than 365 consecutive days from the change in use to the date the property was sold.

The CRA noted that the definition of disposition in the Act lists transactions that may or may not trigger a disposition for purposes of the Act. The definition does not reference changes of use. The CRA stated that while the change-in-use rules deem a taxpayer to have disposed of a property and to have immediately reacquired it at fair market value when they cease to use their residence for personal purposes and begin to use it to earn income, and no election is made under subsection 45(2), the deeming rule applies only for purposes of determining taxable capital gains and allowable capital losses under subdivision c of Division B of Part I of the Act.

Therefore, since the residential property flipping-rules are found in subdivision b of Division B, which deals with the computation of income from a business or property, the taxpayer in the scenario would not be deemed to have disposed of and reacquired the property for purposes of the residential property-flipping rules.

Conclusion

The CRA’s comments illustrate that the application of the residential property-flipping rules to specific scenarios may produce unexpected results. It remains to be seen if the Department of Finance would consider amendments to the rules now that the CRA has highlighted certain adverse results, such as a lack of a continuity of ownership rule for certain corporate reorganizations for purposes of the residential property-flipping rules.

For additional guidance, consult with your EY Tax advisor.

Pyxis Real Estate Equities Inc. v AGC, 2025 ONCA 65
Luke Tincknell and Caitlin Morin, Toronto, and Jeanne Posey, Vancouver

In Pyxis Real Estate Equities Inc. v AGC, the Ontario Court of Appeal addressed the issue of whether rectification is available to remedy unforeseen tax consequences.

In general terms, rectification is an equitable remedy intended to correct errors in legal documents to align them with the parties’ true agreement. This is particularly relevant in tax cases where — unintentionally — the legal documents do not accurately capture the agreed-upon terms, leading to unintended tax consequences.

This decision reviews the requirements for rectification and emphasizes the limitations of this remedy.

Facts

This case involves an individual and four corporations he owned. Each corporation was the sole shareholder of the corporation directly below it, and the owner was the sole shareholder of Holdco 1.

The corporate structure before the relevant transactions was as follows:

The owner owed a shareholder loan of $1.2 million to Holdco 1. In December 2017, the owner asked his accountants to devise a plan that would allow him to pay off the amount he owed to Holdco 1, leave him with a tax-free receipt of $200,000, and remove the unnecessary intermediary corporations.

The plan involved Opco distributing tax-free capital dividends to its sole corporate shareholder, with these dividends being distributed up the chain of corporations. Each corporation in the chain was required to have a capital dividend account balance of at least $1.4 million.¹ To implement this plan, the owner instructed his accountants to review the historical tax and accounting records of each corporation.

The accountants did not conduct the review as instructed and were unaware that one of the corporations (DeficitCo) had a capital dividend account deficit of $300,000. To offset that deficit and complete the transaction as intended, the capital dividends distributed from Opco should have totalled $1.7 million ($1.4 million plus $300,000). As a result, DeficitCo paid a capital dividend in excess of its capital dividend account balance.

In September 2020, the CRA determined that DeficitCo’s capital dividend distribution exceeded its capital dividend account balance and assessed DeficitCo tax equal to 60% of the excess capital dividend.²

The taxpayer sought an order rectifying the relevant corporate documents to give effect to the transaction the taxpayer said it had always intended to carry out. It was because of a mistake by the taxpayer’s accountants that the transaction was not carried out as intended, and the taxpayer sought to rectify that mistake.

Ontario Superior Court decision

The Ontario Superior Court considered the Supreme Court of Canada decision in AGC v Fairmont Hotels Inc., which identified the necessary requirements for rectification.”³ It also cited the Ontario Court of Appeal in 2484234 Ontario Inc. v Hanley Park Developments Inc.  for the proposition that the agreement or transaction must be viewed as a whole, rather than piecemeal.⁴

Based on those cases, the Ontario Superior Court found in favour of the taxpayer, stating that “[w]hen the memorandum is read as a whole, it is clear that the objective of the transactions and the agreement is to pay a tax-free capital dividend to [the owner] of $1,400,000 and to take such preliminary steps as are required to achieve that objective.”⁵

The Superior Court concluded that it would be inequitable to impose an adverse tax consequence on the taxpayer or the owner because of the accountant’s error. Accordingly, the court granted rectification of the corporate resolutions.

Ontario Court of Appeal decision

The Ontario Court of Appeal overturned the Superior Court’s decision, holding that the equitable remedy of rectification cannot correct agreements solely to achieve tax objectives. Rectification is limited to aligning documents with the parties’ prior agreements, not remedying unintended fiscal consequences.

The Court of Appeal cited Fairmont Hotels, observing that “rectification aligns the instrument with what the parties agreed to do, and not what, with the benefit of hindsight, they should have agreed to do.”⁶

It also referred to the Supreme Court of Canada’s decision in Collins Family Trust, which states that “[w]hile a court may exercise its equitable jurisdiction to grant relief against mistakes in appropriate cases, it simply cannot do so to achieve the objective of avoiding an unintended tax liability.”^{7, 8}

The Ontario Court of Appeal determined that the application judge erred in relying on Hanley Park, which was factually distinct from the matter at hand. The court reiterated that rectifications are equitable in nature, and that the “unfair and unconscionable” conduct of one of the parties significantly influenced the decision in Hanley Park. Consequently, the Superior Court’s reasoning that it would be inequitable to impose adverse tax consequences due to an accountant’s error was deemed improper, as it would be contrary to the decisions rendered in Fairmont Hotels and Collins Family Trust.

The Court of Appeal cautioned that rectification is only appropriate when “the executed documents fail to accurately record the parties’ agreement.”⁹ In this case, the agreement was for a $1.4 million tax-free capital dividend to be paid, and the corporate resolutions accurately reflected the agreement. Accordingly, equitable relief was not available to the taxpayer.

Lessons learned

The Ontario Court of Appeal’s decision is a cautionary note to tax professionals that they must be careful when planning for and executing any transaction that may have tax implications.

If the legal documents accurately reflect the parties’ agreement, then the courts will honour that agreement, and rectification will not be available to remedy any unforeseen tax consequences that result. Rather, rectification is only available to correct genuine mistakes in legal documents to align with the parties’ original intention.