The BC (British Columbia) government introduced the Property Flipping Tax in 2025 to combat speculative behavior in the real estate market. This tax aims to target the buying and selling of properties within a short period to gain profit, ensuring a more stable real estate market and protecting long-term housing needs.

What is the Property Flipping Tax?

The Property Flipping Tax is a tax levied on the sale of properties that are purchased and resold within a short period to make a profit. According to the BC government, if a property is sold within two years of purchase, the seller may be required to pay the additional property flipping tax unless certain exemption conditions apply.

Tax Rate and Calculation Method

• Tax Rate: The Property Flipping Tax rate is 20% of the profit made from the sale.

• Applicable Scope: This tax applies to properties purchased on or after January 1, 2025 and sold within two years.

• Calculation Basis: The tax is calculated based on the difference between the sale price and the purchase price (the profit).

Tax Payment Based on Property Holding Period

1. Less than 1 year (within 365 days): If the seller holds the property for less than 1 year, they must pay 20% of the profit as the property flipping tax.

2. 1-2 years (between 366 to 730 days): If the seller holds the property between 1 and 2 years, they will pay the tax proportionally. For example, if the property is sold after 18 months, they would pay 10% of the profit as the property flipping tax.

3. More than 2 years: If the seller holds the property for more than 2 years, they are not required to pay this tax.

4. Assignment Properties: For assignment sales (pre-construction units), regardless of the holding period, the seller must pay 20% of the profit as the property flipping tax.

*Note: If the property is a primary residence, the seller may be eligible for up to $20,000 CAD in exemptions.

Exemption Conditions

Not all short-term sales are subject to the property flipping tax. The following situations may qualify for an exemption:

1. Life Events: Such as divorce, unemployment, illness, or death.

2. Job Relocation: If the seller needs to move due to a change in work location.

3. Safety Reasons: If the property has safety issues that make it uninhabitable.

4. Newly Built Homes: Selling newly constructed or extensively renovated homes.

5. First-time Homebuyers: Eligible first-time homebuyers may qualify for an exemption.

Example

Let’s say Mr. Zhang bought a property for $1,000,000 CAD on January 1, 2025, and sold it for $1,200,000 CAD on June 1, 2026. Since he sold the property within 2 years and does not meet any exemption criteria, he is required to pay the property flipping tax.

• Profit: $1,200,000 CAD (sale price) - $1,000,000 CAD (purchase price) = $200,000 CAD

• Property Flipping Tax: 200,000 × 20% = $40,000 CAD

Therefore, Mr. Zhang would owe $40,000 CAD in property flipping tax to the BC government.

Policy Objectives

1. Combat Speculation: Prevent investors from artificially inflating property prices in the short term, stabilizing the market.

2. Protect Long-Term Housing Needs: Encourage properties to be used for personal residence or long-term ownership rather than short-term speculation.

3. Increase Government Revenue: The revenue generated from the property flipping tax can be used to fund affordable housing and other public services.

Important Notes

• Tax Planning: If you plan to sell a property in the short term, it is advisable to consult a tax expert to understand if you qualify for any exemptions or how to minimize your tax burden.

• Market Impact: This policy may reduce the number of short-term investors, stabilizing property prices, but it could also affect the liquidity of the real estate market.

Starting from June 25, 2024, Canada will increase the Capital Gains Inclusion Rate from the current 50% to 66.67%.

When you sell an asset (such as stocks, art, collectibles, real estate, etc.) and make a profit, you are required to pay Capital Gains Tax on that profit. For individuals, the Capital Gains Inclusion Rate will increase from 50% to two-thirds for capital gains over $250,000 CAD annually, as well as for companies and most types of trusts on all capital gains.

Example of Calculating Capital Gains Tax:

Suppose you bought a property in 2010 for $100,000 CAD and sold it in 2025 for $200,000 CAD. The capital gain is $100,000 CAD. According to the new rules, two-thirds of the gain, which is $66,667 CAD, will be included in your taxable income and taxed according to your income tax bracket.

Strategies to Reduce Capital Gains Tax Liability:

1. Utilize Tax-Advantaged Accounts (e.g., TFSA): Place your investments in a tax-free savings account (TFSA), so the investment income is exempt from capital gains tax.

2. Delay the Sale of Assets: If possible, delay the sale of assets to take advantage of potential future tax benefits.

3. Tax Loss Harvesting: Sell assets that have incurred losses in the same tax year to offset the taxable gains on other appreciating assets.

Starting on January 3, 2023, British Columbia implemented a new homebuyer protection policy known as the "Three-Day Cooling-Off Period." This policy is designed to give homebuyers three business days to carefully consider their purchase, ensuring that necessary financial and property inspections are completed, and helping to avoid impulsive or pressured decisions that could lead to unwise home purchases.

Key Points of the Cooling-Off Period:

• Duration: The cooling-off period begins the next business day after the sale agreement is signed and lasts for three days.

• Right to Cancel: During this three-day period, the buyer can unilaterally decide to cancel the transaction.

• Cancellation Cost: If the buyer chooses to cancel the deal, they must pay a compensation fee of 0.25% of the purchase price. For example, if the price is CAD 1 million, the cancellation fee will be $2,500 CAD.

Example Case Analysis:

Suppose you sign a purchase agreement on February 1, 2025 (Monday) with the seller for a house priced at $800,000 CAD. According to the rules, the cooling-off period would start on February 2 (Tuesday) and end on February 4 (Thursday). During this period, you could:

• Hire an inspector to conduct a home inspection to ensure there are no major structural issues or repair needs.

• Confirm with the bank or lender that the mortgage loan has been approved to ensure funds are in place.

• Reflect on your financial situation and assess if continuing with the purchase is still suitable for you.

If, during the cooling-off period, you decide not to proceed with the purchase, you can choose to withdraw from the transaction. However, you will need to pay a compensation fee of 0.25% of the purchase price, which in this case would be $2,000 CAD, to the seller.

Scope and Exceptions:

This rule applies to most residential real estate transactions, including properties sold directly by individuals, but certain types of properties may be exempt. Additionally, buyers can still include conditions in the purchase agreement, such as home inspections or mortgage approval conditions, to ensure additional protections beyond the cooling-off period.

This measure was introduced to establish a fairer mechanism in the real estate market, giving buyers more time to conduct necessary inspections and evaluations, thus avoiding rushed decisions. It also ensures that sellers are not at risk of losing money due to unjustified last-minute cancellations.