To Flip or Not to Flip?

The Act, which takes effect on Jan. 1, 2025, will apply to owners who sell their residential property less than 730 days after purchasing it. A 20-percent tax (yes, you read that right!) will apply to income earned from the sale within a year of its purchase, and that rate gradually decreases to zero percent by the 730th day, effectively after 2 years.

More commonly referred to as the Home Flipping Tax, the move is aimed at discouraging investors from buying properties only to turn a quick profit by, yes, flipping it. As a further clampdown by the government, income from residential property resold within two years will be subject to the tax.
Within a year, approximately 4,000 properties are expected to be subject to the tax. The government says that all revenue from the tax will go directly into strengthening housing programs and building new homes in BC.

There are some exceptions permitted. People who face unavoidable life changes, including divorce, death, illness, relocation for work, job loss or a change in household membership, will be exempt from the tax.

Builders will also be eligible for exemptions if they are adding to the housing supply, including building housing on residential property with no existing housing, or adding an additional suite or housing unit to a property that has an existing home.

According to Mark Lewis, co-head of the commercial real estate practice at Bennett Jones LLP, 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.

As is always the case with any legislation, the potential exists for what we call, the “law of unintended consequences”. With this is mind we ran a quick, short and pointed survey of FVREB members to gauge their anecdotal reactions to the proposed, and although not necessarily statistically significant, the prevailing sentiments quite likely reflects the general view of the real estate sector towards the proposed legislation. In general:

• The tax is seen by many as a move that would disincentivize investment and merely delay the flipping potential without any real impact on either affordability or supply;
• Overwhelmingly, more than 80 per cent of the respondents did not feel that this tax will help solve the housing crisis in the province;
• The tax is perceived as yet another action that will slow the market down, with negative repercussions on the rental market;
• While some respondents acknowledged the benefits of potentially reduced speculation, the majority of our FVREB members saw no positive impact as a result of the tax; and,
• When asked if there were better alternatives, a consensus emerged around the need to ease rental regulations, as well as reducing tax burdens rather than increasing them, including reducing the capital gains tax, and on finding solutions that will motivate the private sector to continue building properties especially if we really want to see an increase in housing supply.

One respondent, who represented the majority of what we heard from others, summarized the concerns as follows: “Tax those who regularly buy and sell, aka “flip”, [as] this should be seen as business income if it’s a regular activity. As someone who works full time in real estate, I see very few people who are treating real estate as a business [in this way], so why tax the majority—90% or more—on something very few are doing? People who purchase investment properties do so [because] they consider them to be a more safe (sic) investment vs stocks/mutual funds, etc.”

The “windfall” for the BC government from this tax is estimated at $43 million in 2025. Time will tell if that actually materializes, especially as developers, investors, and homebuyers, especially those in pre-sales, may decide to sit this one out. Never before has the term, “Waiting for Godot” taken on such significance as it may do so here in BC in 2025.