The Act created a new tax that applies to profits earned from selling residential property in British Columbia (including presale contracts), if owned for less than 730 days.
The tax applies retrospectively to properties that were purchased before it came into force on January 1, 2025, meaning properties purchased prior to enactment of the Act will be subject to the new flipping tax if disposed of within 730 days of acquisition.
For example, a property acquired on May 1, 2023, and sold on January 31, 2025, would be taxable under this Act. In contrast, however, if that property was held until June 1, 2025, the profit earned from the sale would not be subject to the tax.
If the transaction involves a presale contract, the acquisition date is deemed to be the date the contract was purchased or assigned. For example, a presale contract acquired on June 1, 2025, for a condo that will complete on March 1, 2027, will be deemed to have been acquired on June 1, 2025, when the transaction ultimately completes.
The tax applies to individuals, corporations, partnerships, and trusts alike that sell or dispose of a taxable property on or after January 1, 2025. It’s important to note that a disposition doesn’t refer only to transactions where money changes hands; it applies to any form of consideration whether cash or in kind. The tax does not apply to deemed dispositions, gifts, or legal transfer of title where there’s no corresponding transfer of beneficial ownership.
The tax applies to the net taxable income from the disposition of taxable property owned for less than 730 days. The applicable rate is 20 per cent for the first year, after which it declines on a straight line basis to day 729, at which time it reaches zero.
How is the Tax Calculated?
Calculating the tax is a 4-step process.
1. Determine the taxable income from the sale. That is calculated as net proceeds from sale (net of reasonable legal, appraisal, real estate commissions, inspections, and surveys)
minus
total cost to acquire the property (including legal fees; taxes, such as GST and transfer tax; appraisal, survey and registration fees; and title insurance)
minus
costs to improve the property (those must be of an enduring nature and do not include regular repairs and maintenance) and costs to replace appliances (but not related financing costs)
2. Determine net taxable income. If the property is your primary residence and you lived in it for more than 365 days, you can deduct from the taxable income your share of the $20,000 primary residence deduction (proportionate to your beneficial interest).
3. Calculate the tax rate. For the first 365 days, that will be 20 per cent, after which it is calculated like this.
Tax rate = 20% × [ 1 – ( (Days held – 365) ÷ 365) ]
4. Calculate taxes owing by multiplying the net taxable income by the tax rate. That is best illustrated by an example. Let’s say you purchased a property for $900,000 on May 1, 2023, and you sell the property on January 31, 2025, for $1,000,000. Assuming you put $10,000 into the property for improvements, your taxable income would be $90,000 ($1,000,000 – $900,000 – $10,000).
If you also lived in the property during that time, you would be eligible for the full $20,000 primary residence deduction, which means your net taxable income is $70,000 ($90,000 – $20,000). On January 31, 2025, you would have owned the property for 641 days, making your tax rate 4.88% (20% × [1 – ((641 – 365) ÷ 365)], which means the tax owing is the net taxable income of $70,000 × 4.88% or $3,413.70.
Exemptions
Properties used exclusively for commercial purposes for the entire period of ownership are exempt. 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; carrying out business in some or all of a residential property, however, does not constitute a commercial purpose for the purposes of a tax exemption.
Of course, where a seller holds residential property for the purpose of its sale or renovation, such uses do not constitute commercial purposes.
There are also exemptions for these.
- Certain life circumstance, such as the death of the owner or a related individual, serious injury or disability, eligible relocations (such as a move for school or work), and changes in household membership (for example additions of new family members to the home), relationship breakdown (marital or common law), financial distress, threat to personal safety, and destruction or expropriation of the property.
- Builders, developers, and building or renovating related activity.
- Sales between people who are related by blood, marriage, or adoption.
- There is also an exemption where the property was the primary residence of each party to the transaction for at least a year before the transaction occurred.
Filing Requirements
It’s important to be aware that where the tax applies to a transaction, a return must be filed, regardless of whether or not the calculation of taxes results in no taxes owing or if an exemption has been claimed.
Where the tax does apply, a return must be filed within 90 days of the sale. Failure to file a return as required under the Act will result in a penalty that is the greater of $500 or 5 per cent of the balance owing, plus an amount determined by specified formula. Interest will also be assessed at rate of 3 percent on any taxes owing.
Given that the Residential Property (Short-Term Holding) Profit Tax Act is a new, unique piece of legislation, it is reasonable to expect changes and clarification from the government as the tax is applied to various situations and as questions arise.
The information contained in this article is based on what is publicly available at the time of writing. Readers are advised to stay abreast of changes by visiting the BC Flipping Tax webpages or subscribing to updates at https://www2.gov.bc.ca/gov/content/taxes/tax-updates/email-subscription-form.
JEREMY ANDERSEN is a Courtenay Notary Public and CPA, CA, with 20 years’ experience working in the public sector, private industry, and public practice.