What Is The Home Flipper Tax In BC?
The Canadian government’s 2024 Federal Budget announced more accessibility for people who want to purchase a property by building more properties, extending mortgage amortization periods and increasing RRSP withdrawal limits—welcome changes for many.
However, other announcements, including the increase in capital gains tax and the new home flipping tax, were met with less enthusiasm.
In this guide, we’ll explore the home flipping tax, whether it will impact you, and analyze whether it’s a good or bad thing for residents.
Let’s dive straight in.
What is the Home Flipping Tax?
The home flipping tax is a new measure that requires homeowners to pay tax if they sell a property within two years of purchasing it. If the property is sold in year one of ownership, the tax rate will be 20%, while 18 months of ownership decreases to 10%.
Selling the home after two years of ownership has no tax implications. The new legislation will take effect in January 2025, and the government believes it will generate around $40 million in revenue.
How does it work?
When you sell your home, you’ll pay tax based on your profits. For example, if you purchase a property for $600,000 and sell it for $700,000, you’ll pay $20,000, but selling the property 18 months after you buy it reduces the tax charges to $10,000.
Who is Subject to the Home Flipping Tax?
Property flippers often purchase a property and sell it shortly after completing renovations or noticing changes in the market, allowing them to make a profit.
The new flipping tax law now means that anyone who sells a property within two years of purchasing it will be subject to taxation.
Property developers, those who bought the home for a personal project, and residents who used the home as a second or temporary residence are all subject to home flipping taxes.
It’s important to remember that the new laws apply to anyone who owns and sells property in the province, not just BC residents. This means international buyers will also pay home flipping tax if they sell a home within two years of purchasing it.
Who is Exempt From the Tax?
While the new tax laws will impact many BC residents, there are exemptions that can protect you. If you fall into any of the following categories, you might not need to pay any tax—even if you sell the home soon after buying it.
Individuals who have owned their property for more than two years
The legislation was enacted to prevent home flippers from profiting from the housing market while first-time and low-budget buyers struggle to climb the property ladder.
Many people buy a home and have to move shortly after due to expanding families or other reasons. If you’ve owned your property for over two years, you can sell it and avoid the home flippers tax.
You have a relevant presale contract that takes effect prior to 2027
Presale contracts are agreements between buyers and developers where the buyer agrees to purchase a property, even if it’s still in the planning or construction stages.
These contracts can last for years, but you might be exempt if you entered into the agreement before the tax laws came into effect.
You’re eligible for the primary residence deduction
If the home you’re selling is your primary residence, you can apply for a reduction, allowing you to deduct the capital gains. If you bought a property and lived in it the entire time, you might not have to pay any house flipping tax—but there are restrictions.
Residents need to own the property for at least one year, so even if someone lived in a property continuously for eight months, they’d still need to pay tax on the sale profit.
You’ve had a change of circumstances
There are also exemptions for individuals who sell a property due to changing circumstances. If you change jobs, relocate for other valid reasons, or your marriage breaks down, you might be able to sell the property and avoid paying taxes.
However, there are restrictions. For example, if you relocate to another area, your current property must be at least 40 kilometres away from your place of work or study.
You fall under another exemption category
Other exemptions include buying properties in protected locations, inheriting a home and working in specific sectors. The Government of British Columbia website has helpful information on all possible exemptions.
Understanding how much you might pay can help you decide whether it’s best to sell the property or wait until two years pass.
Benefits of The Home Flipping Tax
While the home flipping tax might be unpopular with some, others will regard it as a positive move that will make housing more available and level the playing field for first-time buyers.
Let’s take a look at the benefits that might result from the home flipping tax.
Decreases Home Flipping As A Practice
Home flipping benefits property developers but also creates problems for first-time buyers, making it harder for them to purchase a home.
According to CTV News, many renters feel like purchasing a property isn’t possible in this lifetime, highlighting an ongoing problem with affordability and accessibility.
Many buyers rely on properties that require renovations, as they’re easier to purchase—but flippers provide more competition, which often increases property prices.
The new laws mean many flippers will avoid selling their homes too early, stabilizing the housing market and making ownership a possibility for prospective buyers.
Discourages Speculation and Investment Properties
Many investors purchase properties as short-term investments, aiming to sell them quickly and make a profit. Unfortunately, this leads to shortages in rental homes and causes supply issues.
Families looking for properties to buy and rent are often pushed out of the market if they’re on a budget, but the new laws discourage speculation and investment properties.
Potential long-term effects include stable property prices and accessibility for renters.
Generates Additional Revenue From Taxes
The 2024 Federal Budget also promised millions of newly built properties by 2031, and the revenue from BC’s home flipping tax will raise funds to facilitate construction across the province.
The government could use the funds to make properties more affordable, provide rental assistance to low-income households, and support first-time buyers.
Downsides of The Home Flipping Tax
While the home flippers tax has numerous benefits, it will also result in some disadvantages. The government will naturally try to strike the right balance between offering first-time buyers support and ensuring the market remains attractive.
Impedes Regretful Home Purchases
Buyers in BC can purchase and sell a home with no implications right now, but this will change when the new laws come into effect. Some people might approach the situation warily and be less likely to purchase a new home unless they know they’ll keep it for two years.
However, investors or buyers with high incomes might not be put off by the home flippers tax, which could still maintain high levels of activity within the market.
Doesn’t Stimulate Additional Housing Builds
While the tax will make purchasing a property more attractive for first-time buyers, it won’t stimulate additional housing construction. The tax only targets existing homes that people sell quickly, so it won’t encourage developers to build new homes.
Many could focus on renovating existing properties instead of building new homes – meaning there’s less supply.
May Affect Development Presales
Investors often buy presale apartments and condos to sell quickly, and the new tax laws might reduce the number of investors interested in them. It could also lead to people seeking out other opportunities that don’t carry the same tax risks.
The number of development properties might drop due to investors delaying projects, meaning there’s a lower supply of affordable housing.
Learn About The Home Flipping Tax With Your Victoria Mortgage Broker
The home flipping tax will change the BC housing market in many ways, but only time will tell if it has the desired impact. If you’re considering buying a new home, the laws don’t come into place until January 2025, giving you plenty of time to find a property that grows with your family.
At Prime Mortgage Works, we help clients find the right mortgage deal for their needs. Whether you’re a first-time homebuyer, investor, or want to upsize, our dedicated mortgage brokers can help.
Please contact us today and discover our vast network of specialist lenders.
