BC Home Flipping Tax!

The “Residential Property (Short-Term Holding) Profit Tax comes into effect January 1, 2025.

For those of you that sold a home in 2024 this will not affect  you, but if you are planning on selling a home in the next year please be aware of that the following tax information MAY affect you.  

WHO DOES THIS AFFECT:

A person (individual, corporation, partnership, or trust) who sells or disposes of a taxable residential property after January 1, 2025 and has owned this property for less than 730 days. This person may reside anywhere in the world. This act also applies to primary residences and pre-sale contracts, not just secondary or vacation properties. 

EXEMPTIONS:

The exemptions fall into a number of broad categories and lay out whether or not you will need to file a return. Let’s start with those that do not need to report or file a short term holding;

Exemptions that do not require filing: 

1. The property is in an exempted location: This may mean in native lands, or on government lands. 
2. You are an exempt entity: Examples are charities, non-profits, government, municipality, first nations, housing cooperative, etc.
3. You acquired the property as a beneficiary of a real estate investment trust
4. You use the property exclusively for commercial purposes. . 
5. Deemed dispositions under the Income Tax Act
6. Leases
7. Gifts

Exemptions that require filing:

1. LIfe Circumstance (Personal):
   1. Your death or the death of a related individual
   2. Serious Illness or disability
   3. Eligible relocation
   4. Change in household membership
   5. Break down of a marriage or common law partnership
   6. Involuntary termination of employment
   7. Threat to personal safety
2. Life Circumstance (corporate, partnership): 
   1. Bankruptcy or Insolvency
   2. Housing unit was destroyed
   3. Expropriation of residential property
   4. Property acquired through lottery
   5. Death of an individual
   6. Foreclosure
   7. Estimated compilation date is delayed by more than 365 days. 
3. Exemptions for Builders:
   1. You must meet the following criteria:
      1. You ordinarily buy and sell property for the purpose of constructing or placing buildings 
      2. You held the taxable property for the purpose of constructing or building on that property\
   2. A related person ordinary buys or sells the property for the purpose of constructing or placing buildings
   3. Exemption for building activity on land without a housing unit
      1. Completion of clearing or excavating land in preparation for a house
      2. Constructing or placing a housing unit on residential property
      3. Any other prescribed activity for construction or placement of a house
   4. Exemption for renovations and construction of additional housing untis.
      1. Substantial renovation of a unit
      2. Demolish and construction of a new housing unit
      3. Additional housing unit is added to an existing house (Ie basement suite), or adding a secondary housing unit.
4. Exemption of property sales for related individuals:
   1. Related individuals must be blood relationship, marriage, common law partnership, or adoption.
   2. Each individual must own the property for 365 consecutive days
   3. The property includes a housing unit that each individual lived in as their primary residence while owning the home. 
5. Exemption for persons related to corporations; 
   1. A person or group of personas that controls the corporation (has the right to elect a majority of the board of directors)
   2. Two related corporations: Controlled by the same group of people
   3. A partnership and a related corporation

     PRESALE CONTRACTS:

To determine if you pre-sale contract will fall under the new laws you will need to know what date the ownership starts at. From here you can see if you qualify for on of the above exemptions, or if you fall under the primary residence deduction. 

Date of ownership starts on: :

1. IF you purchased a pre-sale contract it is the day you pay fro the contract, which is the date entered into the contract
2. IF you purchased the contract directly from the developer it is onThe day you pay the contract deposit to the developer
3. If you purchased or were assigned a presale contract AND then purchased the completed property is it on the date you purchased the completed property. 

 How your primary residence can be taxed:

If you hold your primary residence for less than 730 days, AND you do not fall under any of the exemptions listed above you can qualify a deduction.  It is calculated as: $20,000 x (taxpayers interest) with taxpayers interest being the percentage of beneficial interest held by all persons. 

HOW THE TAX IS CALCULATED:

1. Taxable income from the sale of the property::
   1. Proceeds of the sale LESS the cost to purchase the property LESS costs to improve the property
2. Calculate your net taxable income;
   1. Taxable income from step one LESS primary residence deduction
   2. If this number is negative it is deemed to be ZERO
3. Calculate the tax rate:
   1. Tax rate = 20% x [1 - (days held - 365)/365)]
4. Calculate tax owing:
   1. Tax rate from STEP 3 x Taxable income from step 2

For more information you can contact us at info@beyondtaxes.ca. 

Links to BC Home Flipping Tax:https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax#days-of-ownership