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New B.C. "Home Flipping" Tax
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Along the same lines as federal initiatives to target the resale of renovated homes held for short periods of time through assessments, which we have blogged about here, the government of British Columbia is now introducing a new tax on profits from sales of residential property in B.C. owned for less than two years!
Starting January 1, 2025, the new so-called “Home Flipping Tax” under the Residential Property (Short-Term Holding) Profit Tax Act, (the “Act”) will apply to residential properties sold within 730 days of purchase, with certain important exceptions. The tax is part of the B.C. government’s broader strategy to improve housing affordability in the province by discouraging short-term holding of property for profit.
Those active in B.C.’s residential real estate market should take note!
Overview
The B.C. Home Flipping Tax will apply to the sale of either a beneficial interest in residential property in B.C. (which generally includes (1) property with a housing unit, or (2) land zoned for residential use) or the right to acquire such residential property (e.g., assignments of pre-build condominium contracts). It will apply to sales by persons including individuals, corporations, partnerships and trusts.
The tax rate will vary according to the length of time a taxable property is held. Specifically, the rate will be 20% of the “net taxable income” earned from sale for a property sold within 365 days of ownership, and decrease for properties held between 1 and 2 years. The net taxable income is calculated by subtracting the cost to purchase and improve the property from the proceeds from sale.
The length of ownership will be determined on the basis of transfer of money in respect of the property (i.e., the closing dates in most cases), although special rules will apply for properties sold between related persons.
There will also be a deduction of up to $20,000 available for the sale of one’s “primary residence”.
The Exemptions
Under the Act, the B.C. Home Flipping Tax will not apply to sales of property related to certain “life circumstances” and building / renovation activities. Some of the notable exemptions include:
Life Circumstances:
- Death or serious illness or disability – i.e., sales in the course of arranging affairs in anticipation of a death, serious illness or disability;
- Eligible relocations – i.e., relocations over certain distances for employment or enrollment in post-secondary education;
- Breakdown of marriage or common law partnership – i.e., former couples who have lived apart for at least 90 days prior to the sale; and
- Change in household membership – i.e., related individuals moving in, you moving in with a related individual or having or expecting a child.
Building / Renovation Activities:
- Substantial Renovations – i.e., sale of properties after the removal or replacement of all or substantially all of a housing unit other than structural components;
- New Housing Unit – i.e., the addition of a new housing unit such as a basement suite.
More information is available on the Home Flipping Tax guide here.
Takeaways
The new B.C. Home Flipping Tax introduces new rules and exemptions for the sale of residential property in that province.