A look at `flipping tax' in B.C. and how you could be affected
Levy designed to curb speculative activity in real estate market that drives up prices
Last week, the B.C. government introduced the legislation enacting what is officially known as the “residential property (short-term holding) profit tax act,” but more commonly known as the flipping tax.
The government has said the tax will target profiteers whose speculative real estate activity makes real estate less affordable and attainable for regular British Columbians looking for homes. Experts disagree on what impact the tax will have, and many owners — and potential sellers — of B.C. homes have questions.
WHAT IS THE FLIPPING TAX?
The tax, first announced in February with the release of the 2024 budget, will apply to profits from the sale of B.C. residential property held for less than two years. The tax can apply to any properties zoned for residential use, as well as on income derived from reselling purchase contracts, such as those for presale condos.
This isn't a penalty that applies to all homes that are flipped quickly, but a tax specifically on profit generated by such sales. If a home is sold in less than two years at a loss or for no profit, the tax will not apply.
WHAT IS THE INTENT OF THE TAX?
Provincial government leaders have described the tax as a measure to discourage the kind of speculative activity in real estate that contributes to inflated housing costs.
Finance Minister Katrine Conroy has said the tax is “taking action against investors who use the housing market as a stock market,” while Housing Minister Ravi Kahlon said: “Homes are meant to be lived in by people in our communities, not used for speculation.”
In 2022, the idea of a flipping tax was proposed by now-Premier David Eby, who was formerly housing minister, during his campaign for the B.C. NDP leadership.
All revenue generated from the tax will go into housing programs, and the 2024 provincial budget estimated it would raise $11 million in its first year, increasing to $43 million the following year.
HOW IS THE TAX CALCULATED?
It will vary over time, starting at a rate of 20 per cent of profit generated by the sale of a property any time within its first year of purchase, declining over the next 365 days so that the rate is zero at the end of the second year.
WHEN DOES IT APPLY?
After the legislation is passed, the tax will take effect Jan. 1, 2025. That means that someone who purchased a property as early as 2023 — long before the flipping tax was first announced — could be hit with the tax if they sell in 2025, depending on the precise timing.
WHAT ARE THE EXEMPTIONS?
Home-sellers will be exempt from the flipping tax if the sale of the property “can reasonably be considered” to be related to several life circumstances listed in the legislation, including:
■ Divorce
■ Death
■ Serious illness or disability
■ Moving for work or post-secondary education
■ Involuntary job loss
■ A threat to someone's personal safety
■ Bankruptcy
If a home becomes uninhabitable due to natural disasters such as floods, landslides or earthquakes Builders will be exempt from the flipping tax if they're adding to the housing supply. For example, if a new housing unit is built on the property before its sale, or if a builder adds a secondary rental unit, the flipping tax wouldn't apply.
The tax doesn't apply to certain kinds of properties, including those acquired through inheritance or won through a lottery, or those on First Nations reserves or treaty lands.
The tax applies to individuals or companies selling property, but not to charities, governments and government-owned corporations, Indigenous Nations and non-profit groups.
HOW WIDESPREAD IS THIS KIND OF HOME-FLIPPING ACTIVITY?
The province estimates that around 4,000 properties per year will be subject to the tax.
The B.C. Real Estate Association estimates that short-term flipping represents less than two per cent of sales activity in the Vancouver and Victoria markets.
While the market is currently slower, B.C.'s real estate market has previously seen surges in flipping activity over the years. The province has estimated that seven per cent of residential house sales between 2020 and 2022 were resold within two years. B.C. also saw flipping increase shortly before the 2008 economic crisis and during the hot market of 2016, data analyst Jens von Bergman told Investigative Journalism Foundation reporter Bethany Lindsay last month.
WHAT'S BEEN THE PUBLIC REACTION SO FAR?
Some have argued the flipping tax could have unintended consequences. The B.C. Real Estate Association has said its preliminary analysis estimates the tax will decrease home sales by between one and two per cent over a three-year period.
“Because the government has now implemented a disincentive to sell within a two-year period after purchasing, there will be some potential sellers that are prompted to delay listing, resulting in a lower level of listings' inventory than without the tax,” BCREA policy analyst Brenna Friesen wrote in a post on the association's website in February. “As a result, home prices may increase with the flipping tax compared to a no-tax baseline.”
B.C. United finance critic Peter Milobar predicted the tax was “not going to do much to address affordability,” CTV News reported.
Others have welcomed the tax, including Condominium Homeowners Association of B.C. executive director Tony Gioventu, who was quoted in the province's news release saying it would “slow the speculator frenzy that happens when a flippable property is listed for sale frequently, resulting in unauthorized, unpermitted rushed alterations, leaving communities with a legacy of building failures and conflict.”