The BC government recently passed its home flipping tax which was proposed earlier this year. Changes take effect on January 1, 2025. The tax, governed by the Residential Property (Short-Term Holding) Profit Tax Act, applies to residential properties held for less than 730 days. This initiative aims to discourage property speculation and promote long-term housing stability, aligning with the BC government’s broader “Homes for People” plan. It is important to note this tax is in addition to, and operates independently from, the Federal Residential Property Flipping Rule introduced in 2023.
Property owners should be aware that the BC home flipping tax will apply to transactions even if the property was purchased before the tax’s effective date of January 1, 2025, if it is sold within the 730-day period.
Key Features of the New BC Home Flipping Tax
The BC home flipping tax applies to all property transactions that result in the sale of a property owned for less than 730 days. This includes residential homes, pre-sale contracts, and other residentially zoned properties. The tax targets both residents and non-residents who sell properties in BC and applies a declining tax rate based on the length of ownership. The tax is 20% of the income earned if the property is sold within 365 days of purchase, and the rate decreases until it no longer applies after the 730-day mark.
If an investor purchases a property on January 1, 2025, and sells it on October 31, 2026, the BC home flipping tax will apply since the property was owned for only 669 days, falling short of the 730-day requirement. However, if the same investor holds the property until January 2, 2027, the transaction would be exempt from the tax as the holding period would exceed 729 days.
Exemptions and Special Cases
There are exemptions to the tax for certain life events, including but not limited to the death of a property owner, marriage breakdown, or serious illness.
Property sold between related individuals, such as a transfer from a parent to a child, might also be exempt under certain conditions. For instance, if a person purchases a property from a family member who has owned the property for more than 730 days, the purchaser is deemed to have inherited that ownership period, possibly qualifying them for an exemption.
A notable exception also exists for primary residences. Homeowners who own and live in a property for at least 365 consecutive days before selling it may be eligible for a deduction of up to $20,000 from their taxable income. However, this deduction does not apply to pre-sale contracts.
Other exemptions include properties located on Indigenous or treaty lands, registered charities, government bodies, and nonprofits. Furthermore, if the property was used exclusively for commercial purposes during the ownership period, it is also exempt. For example, if an investor used the property solely as a business office for the entire time it was owned, they would not have to pay the BC home flipping tax.
Comparison to the Federal Residential Property Flipping Rule
The BC home flipping tax stands distinct from the federal Residential Property Flipping Rule, introduced in 2023. A property owner can have tax exposure under one regulation but not the other, depending on the length of ownership and the nature of the transaction, and can face tax exposure under both regulations.
While both target short-term property flipping, the federal rule applies to properties held for less than 365 days, deeming all profits from such sales as business income, irrespective of personal or investment use. Under this federal rule, profits are fully taxable as business income and cannot benefit from capital gains treatment or the Principal Residence Exemption.
Exemptions under the federal rule mirror those of the BC tax, covering life events such as death, job relocation, or marriage breakdown, among others. However, the federal rule introduces stricter guidelines around assignment sales: profits from the resale of a pre-sale contract within 365 days are also deemed business income, while losses incurred in flipping a property under this rule are deemed nil.
The BC tax, with its 730-day threshold, encourages longer holding periods compared to the federal rule, which focuses on 365-day transactions.
A separate BC home flipping tax return, distinct from federal or annual income tax filings, is necessary, adding an additional administrative element.
