Navigating the New Flipping Tax Landscape in Canada: Federal and British Columbia Rules

The landscape of buying and selling property in Canada has shifted with the introduction of two new flipping taxes. This blog post aims to unpack the key details of both of the legislation, being the federal “Residential Property Flipping Rule” and the provincial “BC Home Flipping Tax” in British Columbia, helping sellers understand their implications.

Federal Flipping Tax: Targeting Quick Profits

The federal legislation (sections 12(12) through 12(14) of the Canada Income Tax Act) applies to residential properties in Canada sold on or after January 1, 2023 and targets short-term purchases and resales intended to generate quick profits. It applies to any residential property in Canada, including assignments (selling the rights to purchase a property before it’s built). The key aspect is the ownership period: if you resell a property you have owned for less than one year (365 days consecutively), the profit from the sale will be taxed as business income, and the profit will not qualify for the principal residence exemption from tax, nor for treatment as capital gains (by which only 50% of the gain is taxed).

There are, however, important exceptions. Major life events such as death of an owner or a relative, marriage or common-law partnership breakdown, addition of a child or relative to the household, serious illness or disability, threat to personal safety, eligible work relocation, involuntary termination of employment, insolvency, and destruction or expropriation of home are exempt from the flipping tax rule.

British Columbia Home Flipping Tax: A Graduated Approach

The provincial tax imposed under Bill 15 (implementing the Residential Property (Short-term Holding) Profit Tax Act) in British Columbia specifically targets homes sold within British Columbia. It applies to the income earned from selling a property on or after January 1st, 2025. This means even properties purchased before the effective date but sold on or after January 1st, 2025 within the designated timeframe, will be subject to the tax. The tax applies to properties zoned for residential use (whether or not a residence is constructed on them), as well as assignments (selling the rights to purchase a property before it’s built).

Unlike the federal approach, the BC tax has a graduated system. The tax rate is determined by how long you have owned the property before selling. Properties flipped within one year (365 days) of purchase incur a 20% tax on the profit. This rate gradually decreases as the ownership period extends beyond the one-year mark, finally reaching 0% for properties held for more than two years (730 days).

Similar to the federal exceptions, the BC tax exempts sales due to separation, death, serious illness or disability, involuntary termination of employment, changes in household composition, threats to personal safety, or bankruptcy.

The Bottom Line: Awareness and Professional Guidance

Whether you are a seasoned investor or a first-time seller, it’s crucial to be aware of these new flipping taxes. If you have any concerns about how these rules might apply to your specific situation, consulting a qualified tax accountant is highly recommended. While property lawyers play a vital role in the real estate transaction process, they are not typically tax specialists and may not have the answers you need regarding the flipping tax implications.

By understanding these new regulations and seeking professional guidance when necessary, you can navigate the property market with greater confidence and avoid any unexpected tax liabilities.