Move is part of province's plan to increase housing affordability
British Columbia’s new house flipping tax adds another layer of complexity to real estate transactions lawyers advising on those deals must bear in mind, says Mark Lewis, co-head of the commercial real estate practice at Bennett Jones LLP.
BC introduced the Residential Property (Short-term Holding) Profit Tax Act in its 2024 Budget. It will take effect Jan. 1, 2025. The tax will apply to owners who sell their residential property less than 730 days after purchasing it. A 20-percent tax will apply to income earned from the sale within a year of its purchase, and that rate gradually decreases to 0 percent by the 730th day.
Lewis says that other changes since 2016, such as the Landowner Transparency Act, which requires additional filings, and the foreign buyers’ tax, have made property transfer tax returns more complicated.
“It is another complexity to bear in mind and to examine with your clients,” he says.
In 2018, BC’s NDP government launched a 10-year, $7-billion housing affordability action plan. Measures include a speculation and vacancy tax and a new land-owner transparency registry to counter hidden ownership.
The province’s intention behind the new tax is to target housing speculation and enhance housing affordability by discouraging investors from buying homes to quickly resell them at a profit.
“We don’t think families should have to compete against wealthy speculators when they are purchasing a home, which is why we’re taking action against investors who use the housing market as a stock market,” said BC Minister of Finance Katrine Conroy.
Lewis says the province’s plan includes measures restricting short-term rentals, enforceable housing targets for municipalities, and greater power for the province to override municipalities to spur housing development.
The province said it expects around 4,000 properties to be subject to the tax in a year and that all the revenue will be steered into “strengthening housing programs and building new homes in BC,” which it estimates will amount to $43 million in 2025. The province added that those facing “unavoidable life changes, including divorce, death, illness, relocation for work, job loss or a change in household membership” will be exempt from the tax.
Exempted entities include charities, non-profits, government entities, Indigenous nations, and corporations owned by municipal and regional governments and Indigenous nations.
The tax will also apply when the seller purchases a pre-sale contract for the property.
Developers depend on pre-sale contracts to secure financing, says Lewis, because lenders want to see a large percentage of units sold to ensure it is a viable project in which to invest. He says it will be interesting to see whether the tax discourages people from signing presale agreements.
