As of January 2025, British Columbia will have a new flipping tax aimed at curbing speculative real estate practices and promoting further housing stability in the province. Bill 15-2024 of the BC Government’s Budget measures, outlines that this tax targets individuals who buy and sell residential properties (or rights to residential property via an assignment of sale) within a short time frame - a period of 2 years. By introducing a house flipping tax, the government hopes to deter the type of rapid turnover that can inflate housing prices and make homeownership more challenging for many residents. How does the BC flipping tax work? Who is impacted by the flipping tax; and, what does it mean for buyers, sellers, and investors navigating the BC real estate market?

When does the BC flipping tax apply?

The BC flipping tax applies to both homes, and assignments of sale, if the purchase and sale are made within a 2 year timeframe. However, while the tax applies to these transactions, certain scenarios are exempt when considering whether the tax is payable or not.

If a property is an owner's principal residence for a period of 366 days or more, the rate the homeowner has to pay for the flipping tax is determined by the following formula:

However, if the property is held for a period of 365 days or less, the homeowner has to pay the full 20% of the taxpayer's net taxable income in respect of the income earned on the sale.

The net taxable income of the sale is determined by deducting the cost of acquiring the property and the cost of improving the property from the sale price of the property. If the homeowner had bought the property with the intent of holding it for investment, gave it a refresh with paint, flooring, and new appliances, these costs would be deducted from the sale price, and the balance (i.e. the lift) would be subject to the tax.

Exemptions to the BC Flipping Tax

Certain exemptions, to having to pay the tax, apply in cases of development or major renovation. When a builder or developer buys a property with the purpose of improving it via major renovation or complete new build, the developer is exempt from having to pay the tax. This exemption is only valid where the renovation or new build is done in accordance with the Building Code or local building by-laws (i.e. under the requirements of a building permit).In simpler terms, this exemption mainly applies to professional developers or businesses dealing in property development, not to individuals selling property they own for personal reasons or investments.

Exemptions to having to pay the tax also apply in situations where there is an unexpected change in life events, such as death, illness, job loss, or relocation, force the sale. Financial crises, natural disasters, or government actions can also make you eligible for an exemption. More detail can be found on the BC Government’s website.

There are some caveats to these exemptions which you need to be aware of. The most critical one we want to highlight is that despite the fact developers are exempt from having to pay the tax, they still need to file a flipping tax return and acknowledging they fall within an appropriate exemption.

But wait, there’s more …

Federal Flipping Tax

Unfortunately, the BC flipping tax is not harmonized with the Canadian Government’s flipping tax. Canada’s federal flipping tax, which came into effect in January 2023, imposes a tax on any residential property held for a period of less than 365 days (except in circumstances involving a death, divorce, etc.). Where such exemptions are not applicable - meaning the federal tax applies - the profits from the sale of a flipped property are deemed to be business income, not a capital gain, and also do not receive the Principal Residence Exemption. This means that the profits (i.e. the income) do not benefit from a 50% income inclusion (which capital gains do receive) and this tax applies to properties whether they are considered principal residences or not.

With respect to assignments, the profits would be deemed to be business income if the rights to purchase were completed before the end of the 12-month holding period. The 12-month holding period, from the perspective of the taxpayer who entered into a purchase and sale agreement, resets once the property registers.

These new tax requirements are complicated, and while we’re aware of these changes, the above is not exhaustive. We’re also not lawyers or accountants, and while we would love to help you find the right property to buy, or assist you in selling, if you believe this tax will impact you, we recommend you speak with a lawyer and/or accountant. We have excellent partners that we work regularly, and whom it would be a pleasure to introduce you to. After all, we want you to feel fully informed in all of your real estate decisions, because at the Hill & Harbour Real Estate Group, we believe that the service we provide is “more than a move; Peace of mind.”