British Columbia’s Home Flipping Tax – Overview
Reading Time 2.7 Minutes
Understanding BC’s New Home Flipping Tax
Due to concerns regarding housing affordability, the B.C. government has passed provincial legislation that imposes a home flipping tax (the “Tax”) in an effort to increase the province’s housing supply. The Tax is imposed under the Residential Property (Short-Term Holding) Profit Tax Act (the “Act”), which takes effect on January 1, 2025.
Purpose of the Home Flipping Tax
The Act is intended to target speculators who purchase and sell residential property for quick profits, with the goal of limiting housing price inflation and improving affordability for families in BC.
Definition of a Flipped Home
The Act outlines that, when a person purchases a residential property in BC and sells it within two years of the date of purchase, that home is considered to be “flipped,” and the Tax will apply. The income generated from the sale, subject to certain exemptions, will be taxed at a rate of up to 20%.
Application of the Tax
The Tax will apply to residential properties sold on or after January 1, 2025.
What Qualifies as Residential Property
“Residential property” is defined in the Act as
- properties with a housing unit;
- properties zoned for residential use; and
- the right to acquire the above properties, such as the assignment of a purchase contract.
Tax Rate and Timeline
The applicable tax rate will vary on a declining basis depending on when a property is bought and sold, or a contract is entered into and then assigned. A 20% tax rate will apply to net taxable income earned from the sale of a property or an assignment of a contract within 365 days after it was purchased, and then gradually decreasing to 0% until day 730 (two years).
Exemptions and Deductions
Several entities are exempt from the Tax, including registered charities, non-profit organizations, the government, and other government-related entities.
Life Circumstance Exemptions
For residential property owners, exemptions may apply in cases of:
- separation or divorce;
- disability or illness;
- death;
- involuntary job loss;
- relocation for work;
- change in household membership (e.g., birth or adoption);
- personal safety; and
- insolvency.
Primary Residence Deduction
If someone sells their primary residence, they may be eligible for a taxable income deduction up to $20,000, subject to conditions.
Impact on Businesses and Commercial Properties
Commercial properties are exempt from the Tax, provided they are used exclusively for commercial purposes.
Penalties for Corporations
Corporations can incur penalties for offences under the Act, and liability can extend to employees, officers, directors, or agents.
Conclusion
The B.C. government acknowledges that the Tax alone will not solve housing affordability issues. Homeowners or real estate investors expecting to gain income from selling properties held for less than 730 days should be aware of the rules and plan accordingly.
If you have questions about the new Home Flipping Tax in British Columbia or need assistance with your real estate transactions, feel free to reach out to our team. We would be happy to provide guidance tailored to your needs.
*This post is not intended to be legal advice and should not be taken as such. Please contact McConnan Bion O’Connor & Peterson if you have any questions regarding this post or require assistance or legal advice regarding real estate and property taxes.