New year, new housing-related tax; after such a policy was confirmed in early 2024, the Government of British Columbia’s new home-flipping tax will take effect on January 1, 2025.
Essentially, this home-flipping tax applies on the income generated from the sale of the residential unit that was owned for less than 730 days or two full years.
The full tax rate is high — 20% of the income earned from the property if it is sold within the first 365 days since the unit’s last transaction, with the rate incrementally decreasing over the second period of 365 days. At 730 days, the tax no longer applies.
If the home is the individual’s primary residence and it was owned for at least 365 days, there is a $20,000 deduction in the tax owed.
To calculate the tax owed, the proceeds from the sale of the property should be subtracted from the cost to purchase the property and the cost to improve the property.
As a theoretical example, if an individual purchased a home for $900,000 on December 1, 2023, subsequently made $10,000 in home improvement expenses from buying new appliances (e.g. fridge, washer, dryer, and cooking range), and lived in it as their primary residence until they sold it for $1 million on January 1, 2025, they would owe $12,657.40 in home-flipping taxes for the transaction. This is based on the application of the $20,000 primary residence deduction, the $10,000 home improvement deduction, and the calculation of an 18.082% taxable rate for the individual based on their ownership of the property for 398 days.
But if this same individual held the property for 365 or fewer days, they would owe a higher tax of $18,000, as they would have to pay the full 20% tax rate and not be eligible for the $20,000 primary residence deduction.
Under the provincial policies, there are some home-flipping tax exemptions for certain scenarios where people sell their home within two years of buying it, such as the scenarios of divorce, job loss, serious illness, death, employment relocation, education relocation, and change in household membership (e.g. new baby), as well as other circumstances like bankruptcy, foreclosure, and new housing construction.
All sellers that have sold a property within 729 days of purchasing are required to file a home-flipping tax return within 90 days of the sale, even if they are exempt from the tax.
The provincial government is implementing the home-flipping tax as the newest additional measure to further discourage speculation and the practice of buying homes to turn a quick profit, which escalates the market home price. For the tax’s first year in 2025, it is anticipated about 4,000 properties will be subject to this tax.
“The BC home-flipping tax is just one more tool in our toolbox to help people find affordable housing,” said Ravi Kahlon, BC Minister of Housing and Municipal Affairs, in a statement earlier this month.
“We’re working to deliver more homes so the people who keep our communities working, like teachers, nurses and construction workers, can find a place to live they can afford in the communities they love.”
But the BC Real Estate Association (BCREA) has warned the new tax could have some unintended impacts of decreasing housing supply and further tightening market conditions due to the policy lowering the available number of listings, with potential sellers delaying their listings.
BCREA estimates this new tax will lower the number of home sales by only 1.7% over the first three years of the policy, suggesting the tax will have a small impact on home prices and affordability conditions.