After a series of concerns over housing affordability in British Columbia, the 42^nd Parliament introduced Bill 15 – 2024: Budget Measures Implementation (Residential Property (Short-Term Holding) Profit Tax) Act (Bill 15).¹

Bill 15 received royal assent on April 25, 2024 and the Residential Property (Short-Term Holding) Profit Tax Act (the Home Flipping Tax Act), which comes into effect January 1, 2025, is estimated to generate CA$43 million in its first fiscal year. It is intended to target speculators who purchase and sell residential property for quick profits, with the goal of curbing housing price inflation and enhancing affordability for families in British Columbia.²

Key aspects

Under the Home Flipping Tax Act, profits from flipped residential properties face a 20% tax rate if the residential property is sold within one year of acquisition. The tax rate gradually decreases for sales occurring between one and two years, eventually reaching zero after two years. Any disposition within the first two years of acquisition of a residential property is a taxable transaction. Importantly, the foregoing applies to residential properties that were purchased before the effective date of the Home Flipping Tax Act, being January 1, 2025. This means that the proceeds of sale for residential properties purchased prior to January 1, 2025 will be deemed to be net taxable income if these residential properties were not owned by the purchaser for two full years.

What is taxable property?

Under Bill 15, taxable property refers to residential property. Bill 15 defines “residential property” as: (a) a housing unit in British Columbia with land subjacent or immediately contiguous to the same or (b) land that is zoned all, or in part, for residential use and no part of the land, building, or other structure is otherwise included in (a).³ The tax will also apply to any profit earned on pre-sale contracts and the assignment of presale contracts. Once a presale contract has been completed, the date that a purchaser enters into a pre-sale contract will be the date the purchaser is considered to have acquired the residential property for the purpose of the Home Flipping Tax Act. In the context of an assignment of a pre-sale contract, the original purchaser will be considered to have acquired the residential property on the date they entered into the pre-sale contract with the developer. The date a purchaser assigns their presale contract will be considered to be the date they disposed of the residential property for the purposes of the Home Flipping Tax Act and any profit earned due to an increase in fair market value of their pre-sale property will be net taxable income.⁴

For the purposes of Bill 15, profit from the sale of commercial property is non-taxable. Bill 15 provides the Lieutenant Governor in Council with authority to make regulations establishing guidelines determining whether all or part of a residential property comprising taxable property is, or is not, primarily used for a commercial purpose.⁵ Such guidelines would impact whether profit from the sale of those residential properties used for commercial purposes would be taxable.

Calculating net taxable income

The amount of tax payable under Bill 15 depends on the net taxable income in respect of a taxable transaction. That is, Bill 15 proposes certain deductions from the proceeds of a taxable transaction, such as the acquisition cost and any cost associated with improving the property. The net taxable income is calculated as follows:

Eligible improvement costs are those costs paid, or those costs payable by the seller to improve the property during the time period in which the seller owned the property.

Exemptions and deductions

The amount of net taxable income derived from a taxable transaction may be further reduced if: (a) the property is owned for a minimum of 365 consecutive days and (b) the property includes a housing unit that was the taxpayer’s primary residence during the period in which the seller owned the property.⁶ This deduction is called the “primary residence deduction.”

The Home Flipping Tax Act provides a specific exemption to developers who, in the ordinary course of business, buy and sell property for the purpose of constructing or placing buildings on that property.⁷ Other exemptions are provided for entities that qualify as: (a) a registered charity or non-profit organization; (b) a cooperative association; (c) the government; or (d) an Indigenous nation.

Certain exemptions for particular life circumstances are also set out in Bill 15. If claiming one of these exemptions, a seller would still need to report the taxable income but may be exempt from paying any tax. Exemptions exist where a sale occurred due to, or in anticipation of, personal events such as familial death, illness, disability, job loss, divorce, threats to personal safety or destruction of the home. Other events such as insolvency, foreclosure or expropriation leading to the sale of the residence may also qualify a seller for exemption.⁸

Enforcement and penalties

When a taxable transaction occurs, the seller must file a specific tax return for such taxable transaction within 90 days.⁹ Not complying with this requirement is an offence under the Home Flipping Tax Act. Sellers also contravene Bill 15 if they make false statements or deceptive omissions in a tax return or other records¹⁰ or refuse to provide required records or information in relation to their tax return or the taxable transaction.¹¹

Offences under the Home Flipping Tax Act attract either a fine, imprisonment up to two years, or both. The fine is between 50 and 200% of the tax sought to be evaded and can apply to both individuals and corporations.¹²

Practical impacts on businesses

Commercial properties are entirely exempt from the Home Flipping Tax Act. However, anyone claiming the commercial property exemption must ensure that the property has been exclusively used for a commercial purpose for the entire period of their ownership.¹³ If the property was used for residential purposes when it was purchased and subsequently used for commercial purposes, it may not qualify for any exemption. Where a seller holds residential property for the purpose of its sale or renovation, these uses do not constitute commercial purposes. Similarly, carrying out business in a residential property, or any part thereof, will not constitute a commercial purpose for the purposes of a tax exemption.¹⁴

Corporations can incur penalties for committing offences under the Home Flipping Tax Act. If a corporation commits an offence, an employee, officer, director, or agent who is authorized, permitted, or acquiesced in the offence is also deemed to have committed that offence regardless of whether the corporation is prosecuted. Further, if an employee, officer, director or agent is found to commit an offence, the corporation is presumed to have committed the same offence. A corporation may rebut this presumption by showing that it exercised the due diligence which was required to prevent the offence.¹⁵

Conclusion

The government acknowledges that the Home Flipping Tax Act alone will not solve housing affordability issues in British Columbia. Concerns remain regarding the tax’s effectiveness, given the cooling housing market and the various exemptions.¹⁶

Businesses, as well as builders and developers have numerous exemptions to take advantage of. However, careful adherence to the legislation, should it be passed, is advised given its significant penalties.

For more information on this topic, please contact Brigham Jagger, Inder Biring or Emily LeDue

[1] British Columbia, Bill 15 – 2024: Budget Measures Implementation (Residential Property (Short-Term Holding) Profit Tax) Act, 42-5 (2024), (Hon. Katrine Conroy).

[2] The Canadian Press, “Update: B.C. targets ‘profiteers’ with legislation to bring in 20% flipping tax,” The Vancouver Sun, (3 April 2023), <https://vancouversun.com/news/bc-to-announce-details-of-home-flipping-tax>.

[3] Bill 15, section 1.

[4] Government of British Columbia, “BC Home flipping tax,” Gov.BC, (3 April, 2024), <https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax>. [“BC Home Flipping Tax”].

[5] Bill 15, section 103.

[6] Bill 15, section 12.

[7] Bill 15, section 22.

[8] BC Home Flipping Tax, supra note 4.

[9] Bill 15, section 31.

[10] Bill 15, section 95.

[11] Bill 15, section 97.

[12] Bill 15, section 96.

[13] Bill 15, section 24.

[14] Bill 15, section 1.

[15] Bill 15, section 99.

[16] Chad Pawson, “B.C. premier admits home-flipping tax is no silver bullet,” CBC News, (26 February, 2024).