B.C.’s Home “Flipping Tax”: What Property Owners Need to Know

The recently concluded legislative session (and the last before the upcoming provincial election) saw continued efforts from the B.C. government to deliver on its “Homes for People” plan, which lays out various government actions and programs to address the persistent housing affordability problem in B.C. One such effort includes Bill 15 – Budget Measures Implementation (Residential Property (Short-Term Holding) Profit Tax) Act, 2024 (Act). Commonly referred to as the “flipping tax,” the Act will impose a tax on profits earned from the sale of residential properties that are sold (or flipped) within 730 days (or two years) of the initial acquisition. 

Who Is Affected?

Beginning on January 1, 2025, property owners in British Columbia may be required to pay a tax on the income earned from the sale of residential property if sold within two years of its acquisition. Residential property includes: 

• Any “housing unit” (meaning a self-contained unit for residential accommodation, excluding float and manufactured homes), together with the surrounding land and 
• Any land zoned all or in part for residential use that does not include a housing unit.

It is important to note that the tax will apply to pre-sale contracts (in addition to any other right of a person to acquire residential property, such as an option to purchase), so any assignment of a presale contract within two years following execution could be subject to the tax. The two-year period begins when the person (i) signs the presale contract with the developer, in the case of the original buyer, or (ii) takes assignment of the presale contract, in the case of any subsequent assignment. The acquisition date is when the presale contract was executed or assigned, so the clock does not reset when the transaction closes and the buyers move into their new home. 

How Is the Tax Calculated?

Total Tax Payable

The amount of tax payable depends on the total days the taxpayer held the property. If the taxpayer sells the property within 365 days of the initial acquisition, the tax is 20% of net income. 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. Property owners who are subject to the tax must file a tax return within 90 days of the taxable transaction unless they qualify for an exemption. 

Net Taxable Income

The total taxable income from any sale is determined by subtracting the taxpayer’s cost of acquiring and improving the property from the proceeds of disposition. 

Acquisition costs include the total amount paid for residential property, plus typical purchase transaction expenses, such as legal, registration and inspection costs, and any GST paid on the initial acquisition. Taxpayers may also exclude the costs of any improvements that are of an “enduring nature,” such as replacing appliances and undertaking substantial renovations of a housing unit. The proceeds of disposition are the total proceeds received from the sale of residential property, less typical sale transaction expenses, such as survey, legal and broker costs. 

Primary Residence Deduction

If a taxpayer holds the property for at least one year, and the property contains a housing unit that was the taxpayer’s primary residence (defined as 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 residential property. 

What Are the Exemptions?

The Act contains exemptions based on various criteria. Key exemptions are:

• Life Circumstances: The tax may not apply where a sale of residential property results from certain life circumstances, including the death or serious illness of a family member, relocations for work or education, or changes in household membership such as the birth of a child, moving in with a partner, or the breakdown of a relationship.
• Identity of the Seller: The tax will not apply to certain sellers, including Indigenous Nations, registered charities, and various government entities.
• Related Persons: The tax may not apply if the property is transferred to between “related persons,” which includes (i) certain related individuals (including by blood, marriage, common law or adoption), provided such individuals used the property for at least one year as their primary residence; (ii) various corporate affiliations, including corporations that are controlled by the same person, corporations and those who control such corporations, and new corporations resulting from amalgamation. 
• Commercial Uses: The tax will not apply if the seller used the residential property exclusively for a commercial purpose. If any part of the residential property was used primarily for a commercial purpose, then such part is deemed “commercial property,” and any associated net income is not taxable. While the Act excludes certain activities (including holding, renovating, or renting the residential property), it does not state what constitutes a “commercial purpose.” The Act contemplates regulations establishing the circumstances in which residential property may be considered used for a commercial purpose, but as of the date of this publication, no such regulations have been released.
• Builders and Developers: The tax will not apply to builders or developers provided (i) they buy and sell property for development purposes and construct or place buildings on such property in the ordinary course of their business and (ii) the subject property was held for development purposes. 
• Renovations and New Housing Units: The tax will not apply to the sale of a property if: (i) there is a “substantial renovation” to a housing unit on the property (which includes renovations where the habitable area is at least doubled, or all or substantially all of the non-structural components are removed or replaced); (ii) the property contains a housing unit, and a new housing unit is created in addition to, or replacement of, the existing housing unit; or (iii) the property does not contain a housing unit (e.g., bare land), but a “building activity” has occurred (which includes clearing or excavating) during the time the person owned the property that relates to the development of a housing unit.

Takeaways

The flipping tax adds to a growing list of considerations for those transacting in B.C. real estate. While the flipping tax may undergo updates as the Act progresses towards expected legislative approval by 2025, the government has given consideration to ensuring the Act does not capture unintended targets. For example, some development activities may be exempt pursuant to the carve-outs for developers, builders, and substantial renovations. In addition, certain non-arm’s length corporate transactions may not immediately trigger a tax liability, provided the entities involved are related parties. Further, commercial uses are exempt to ensure properties used for business activity do not incur a tax liability, but the Act contains vague language regarding what constitutes a commercial purpose.

In any case, the effects of the flipping tax remain to be seen. The Act aims to discourage speculative property flipping, but it comes at a time of higher interest rates and decreased sales activity. One thing is certain: any transaction that involves the sale of residential property soon after the initial acquisition must be carefully considered to determine any tax implications under the Act.

For more information, please contact:

or any other member of our Commercial Real Estate group.