The BC home flipping tax (the “Flipping Tax”) imposed under the Residential Property (Short-Term Holding) Profit Tax Act (the “Act”) took effect on January 1, 2025. The Flipping Tax introduces a new tax on the net taxable income from the sale of taxable properties within 2 years of the date of purchase.
Who is Affected by the Flipping Tax?
The Flipping Tax applies to all taxable properties sold or assigned after January 1, 2025. Therefore, properties purchased prior to January 1, 2025, can be subject to the additional tax if owned for less than 730 days, unless an exemption applies.
Taxable property refers to a beneficial interest in residential property or a right to acquire a beneficial interest in residential property. Therefore, the tax will apply to the sale of the following:
- properties with a housing unit;
- properties zoned for residential use; and
- the right to acquire either of the above, such as an assignment of a presale contract.
Individuals who sold a taxable property will be required to file a Flipping Tax return within 90 days of the sale if they sold it within 729 days of purchasing it and are not eligible for any exemptions, or if the exemption applies only after you file a return.
Calculating Net Taxable Income
Net taxable income from the sale of taxable property is calculated by subtracting the acquisition costs and any costs spent to improve the property from the proceeds of the sale. As such, any costs related to the replacement of major appliances, long-term improvements to the property, or planning costs related to building a new housing unit or undertaking a substantial renovation can all be applied to decrease your net taxable income under the Flipping Tax.
Calculating Tax Rate
If you owned the taxable property for less than 366 days, the tax rate is 20%. If you owned the taxable property for more than 366 days and less than 730, the tax rate is reduced until it reaches zero according to the following formula: Tax Rate = 20% x [1 – ((Days held-365)/365)].
Are there any exemptions to the Flipping Tax?
If you qualify for any exemption to the Flipping Tax, you will not have to pay the Tax. Depending on the exemption you qualify for, you are either exempt only after filing a tax return or can be exempt without filing a return.
Exemptions that require filing a return include:
- Life circumstances exemptions;
- This covers situations such as your death or the death of a close family member, serious illness or disability, an eligible relocation, changes in household composition, breakdown of a marriage or common-law partnership, job loss, or safety threats.
- Exemptions for builders, developers, and building or renovating related activity; and
- Exemptions for property sales between related persons.
Exemptions that do not require filing a return include:
- If your property is in an exempt location;
- You are an exempt entity as defined by the act, which includes, among other entities, the government, a registered charity, or an Indigenous Nation;
- You acquired the property as a beneficiary of a real estate investment trust; or
- You used your property exclusively for a commercial purpose.
Penalties for Late Filing
Failures to file your Flipping Tax return and pay the tax by the required filing due date, may result in interest and penalties. Interest is charged at a rate of prime plus 3% for late payments of the balance owing and penalties are charged in the first instance equal to:
- the greater of $500 or
- the amount determined in the following formula: 10% x the balance owing + (1% x (A) x (B) ).
- Where:
- A = the greater of $500 or the balance owing; and
- B = the number of months up to a maximum of 12 complete months from the filing due date to the earlier of:
- the date the return was filed; and
- the date you were assessed a penalty.
In some cases, you can request a waiver of the penalties and interest in circumstances where the failure to file and pay the Flipping tax was caused by circumstances beyond your control.
To learn more about how your property may be affected by the home flipping tax, or for any general real estate inquiries, reach out to Paul Tonita (TONITA@PUSHORMITCHELL or 250.869.1226) and Derek Graham ([email protected] or 250.869.1129) to learn more about how they can help.
