Understanding BC’s New Home Flipping Tax: What You Need To Know

By: Elias Notopoulos & Nazanin Farokh .

We have a housing crisis in British Columbia.?The British Columbian government has most recently attempted to reduce the problem by introducing new tax rules and imposing a new tax aimed at curbing speculation in the residential real estate market that is, by ending home flipping (the “Flipping Tax”). These new rules and the new tax have caused significant concern in the province’s real estate market. The tax is implemented under the Residential Property (Short-Term Holding) Profit Tax Act, which takes effect on January 1, 2025. The Flipping Tax imposes a home flipping tax on income earned from the sale of residential properties sold within 730 days (approximately two years) of purchase. If you are considering buying or selling a residential home in British Columbia, it’s essential to understand how these rules might affect you.

What is the Home Flipping Tax?

The Flipping Tax is a measure designed to discourage short-term speculative investments in British Columbia real estate. If you sell a residential property within 730 days of purchase, the Flipping Tax may impose additional tax on the taxable income earned from such sale if a taxpayer does not qualify for an exemption. The Flipping Tax applies to both primary residences and investment properties. In addition, taxpayers who are subject to the tax must file a tax return within 90 days of the taxable transaction unless they qualify for an exemption. Failing to comply may result in additional penalties.

Who does it affect?

The Flipping Tax targets taxpayers who buy and sell properties within a short period of time, aiming to make a profit from the rising British Columbia real estate market. However, the Flipping Tax does not apply or is reduced in certain exceptions such as the following:

1. Life Events: If you sell your home due to significant life events, such as the death of a family member, divorce, or the birth of a child, you may be exempt from the tax if certain criteria are met.
2. Job Relocation: If you are forced to move for work or military service, you may qualify for an exemption.
3. Health Issues: Home sales for health-related reasons may also be exempt, provided you can substantiate the need to sell your property.
4. Primary Residence Deduction: If a taxpayer owns a property for at least a year and such taxpayer occupied the property as their primary residence (i.e. the place in which an individual resides longer than any other place) during such period, then the taxpayer may deduct up to C$20,000 from the total taxable income earned on the disposition of the property.?
5. Exempt Persons: First Nations organizations, various government organizations and non-profit organizations are exempt from the Flipping Tax. In addition, the Flipping Tax generally does not apply to properties located on First Nations lands.
6. New Construction and Renovations: The Flipping tax will not apply to builders or developers if the property was: (i) purchased and held for development purposes; and (ii) the developer buys and sells property for development purposes in the ordinary course of their business. In addition, there are exemptions for when: (i) new housing units are added to a property; (ii) there is a substantial renovation of a housing unit; or (iii) there is a substantial renovation of an existing housing unit.

How is the tax calculated?

A taxpayer’s tax liability will depend on the duration that such taxpayer holds a property before its ultimate disposition. If the taxpayer sells the property within 365 days of the initial acquisition, the tax is 20% of the net income realized on the sale of the residential property. If the taxpayer sells the property after 365 days, then the tax decreases on a sliding scale until no tax is payable, which is on the day that is 730 days from the initial acquisition of the property.

Why was this tax introduced?

The British Columbia government introduced the Flipping Tax to combat housing speculation, which is one of the factors which has been driving up housing prices and making homes less affordable for residents in British Columbia. By attempting to discourage quick flips, the government is attempting to stabilize the housing market and ensure that homes are used primarily for living – not as investment vehicles.

The Flipping Tax is an important consideration for anyone involved in the British Columbia real estate market. Whether you are a current homeowner, investor, or planning to make your first home purchase, understanding these rules are imperative to help you make informed decisions and avoid unexpected tax consequences.

Contact Watson Goepel’s experienced Real Estate Legal team today to receive strategic and practical legal guidance.

This article is intended to be for informational purposes only. This article does not constitute legal or professional advice.