REAL ESTATE NEWS

British Columbia Home Flipping Tax

The B.C. Government has recently proposed a home flipping tax (the “Home Flipping Tax”) that will take effect starting January 1, 2025, subject to approval by the legislature. This tax, when passed, will apply to income from the sale of a property, including presale contracts, in British Columbia if the property was owned for less than 2 years. 

The Home Flipping Tax is separate and distinct from the federal property flipping rules and is not harmonized or administered with the federal or BC Income Tax. The stated intent is to discourage short-term holding of property for profit.

Who is subject to the Home Flipping Tax?

The Home Flipping Tax technically applies to BC residents and non-residents who sell their property on or after January 1, 2025. Tax will be payable on any gain or income earned from the sale of the property if the property was purchased less than two years before the sale, subject to any exemptions.

Importantly, the legislation as drafted includes a provision that property purchased before January 1, 2025 may be subject to the tax if sold on or after January 1, 2025 and owned for less than 2 years, unless an exemption applies.

Exemptions

There are certain exemptions contained in the legislation, including:

• Certain First Nations land;
• Certain entities (such as a First Nation, a registered charity, a municipal entity);
• Life Circumstance exemptions, such as:
  • Death, serious illness, and divorce;
  • Bankruptcy, expropriation and foreclosure.
• Transactional exemptions, such as:
  • Related party transactions; 
  • Commercial use and developer exemptions; and
  • Renovation or construction of additional housing units.

The above list is provided for illustrative purposes only and is not exhaustive. For a full list of exemptions please see here: https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax/exemptions

Relevant properties

The Home Flipping Tax applies to residential properties as well as presale contracts. It also includes assignments of presale contracts.

Presale Contracts

The original buyer of a presale contract (ie., the person that purchased the contract from the developer) will be considered to have acquired the contract on the date that the presale contract was entered into.

An assignment buyer of a presale contract (ie., a person that acquired the presale contract from another person) will be considered to have acquired the contract (or the eventual unit) on the date the assignment was completed.

Completion of the presale contract does not restart the clock for the purposes of the Home Flipping Tax. 

If the presale contract is assigned within two years of the date the presale contract was entered into, the Home Flipping Tax will apply. 

In other words, for the purposes of the two year window contained in the Home Flipping Tax, the relevant starting date is when the person acquired their right in the unit.

How the Home Flipping Tax is Calculated

The Home Flipping Tax applies to net taxable income from the sale of taxable property that was owned for less than two years.

The tax is calculated by multiplying your net taxable income by your tax rate. Net taxable income is your taxable income less the primary residence deduction. Taxable income is calculated as your proceeds from the sale of the property, minus the cost to acquire the property and any eligible costs paid or payable by you to improve the property while you owned it.   

The tax rate is 20% of income earned from a property sold within 365 days. At 730 days, the tax no longer applies.

Primary residence deduction

If you sell your primary residence and you owned the property for less than 730 days, you may be able to claim a deduction of up to $20,000 from your taxable income if you meet the following conditions:

• You owned the property for at least 365 consecutive days before you sold it
• The property includes a housing unit that you lived in as your primary residence while you owned it

A primary residence is defined as the place you lived in longer than any other place during the time you owned the residence. The primary residence deduction isn’t available when you assign a presale contract.