Flipping A House? B.C. To Introduce House-Flipping Tax
Effective as of January 1, 2023, the new residential anti-flipping tax rule came into effect in Canada according to which all flipped properties profits are subject to full income inclusion. The primary goal of this law is to combat excessive price growth in the housing market. It uses measures such as regulating foreign buyers and penalizing false use of the principal residence exemption to ensure proper reporting of business income and stabilize home prices.
What is considered property flipping?
Property flipping involves purchasing residential property and reselling the property in a short period of time to realize a profit. This also includes reselling the rights to purchase a property before its official sale.
A “flipped property” of a taxpayer is a housing unit located in Canada, that is not already considered to be inventory of the taxpayer and was owned by the taxpayer for less than 365 consecutive days prior to the disposition (12-month holding period).
The new rule provides exemptions for Canadians who sell their home within 12 months due to certain life circumstances, such as:
- The death of the taxpayer or a person related to the taxpayer.
- A related person joining the taxpayer’s household or the taxpayer joining a related person’s household (e.g., birth of a child, adoption, care of an elderly parent).
- The breakdown of a marriage or common-law partnership of the taxpayer, where the taxpayer has been living separate and apart from their spouse or common-law partner for at least 90 days prior to the disposition.
- A threat to the personal safety of the taxpayer or a related person (e.g., the threat of domestic violence).
- The taxpayer or a related person is suffering from a serious disability or illness.
- An involuntary termination of the employment of the taxpayer or the taxpayer’s spouse or common-law partner.
- An eligible relocation of the taxpayer or the taxpayer’s spouse or common-law partner (e.g., generally, a relocation that enables the taxpayer to carry on business, be employed or attend full-time post-secondary education).
- The insolvency of the taxpayer (e.g., due to an accumulation of debts).
- The destruction or expropriation of the property (e.g., where the property is destroyed due to a natural or man-made disaster).
What is Changing?
Until now, when an individual sold a residential property that was held for personal use or to generate rental income, the profits were considered capital gains. If the property was the principal residence of the homeowner, the owner could claim the exemption to eliminate any tax arising from the gain. If the owner was not able to claim the principal residence exemption, the tax rules allowed for only 50% of the gains from the sale to be taxed.
To learn more about Capital gains and how they are taxed in Canada, read another article we wrote – How Do Capital Gains Work In Canada?
Takeaway
Before you put your property on the market, review the new measures enacted by the Federal Government to evaluate whether they will affect your sale. The new rules may also impact decision making for purchases of residential real estate, whether it be for personal use or investment purposes.
If you have any questions or need any assistance regarding the new proposed anti-flipping measure, or any tax matter, please feel free to contact us today! We are here to help!