Summary: Read Before You Flip
Thinking of selling a property you’ve owned for less than a year or two? The taxman is watching, and these new rules mean you could be sharing more of your profit than you’d like. Here’s what you need to know to avoid a nasty surprise (and maybe keep a little more for that vacation fund).
BC Home Flipping Tax
Effective Date: January 1, 2025
The BC Home Flipping Tax applies to taxable property sold within 730 days (two years) of acquisition. This includes beneficial interest in residential property and rights to acquire such interest (e.g., pre-sale contracts). The tax is separate from the federal flipping rules and applies regardless of the seller’s residency.
Tax Rates:
- Ownership ≤ 365 days: 20% tax on net taxable income
- Ownership 366–729 days: Tax rate gradually decreases to 0%
- Ownership ≥ 730 days: Exempt
Exemptions:
You may be exempt from the tax due to life circumstances (requires filing a return), such as separation/divorce, disability or illness, death, job relocation, change in household membership, insolvency, or safety threats. Automatic exemptions (no return required) apply to property used exclusively for commercial purposes, property located on exempt Indigenous lands, and sales by exempt entities (e.g., charities, governments, REITs).
Primary Residence Deduction:
If the property was your primary residence, you may deduct up to $20,000 from your net taxable income, subject to eligibility.
Filing Requirements:
A separate tax return must be filed within 90 days of sale if you’re subject to the tax or claiming an exemption that requires filing.
Federal Residential Property Flipping Rules
Effective Date: January 1, 2023
The Federal Residential Property Flipping Rules apply to sales of residential property including rental units held for less than 365 consecutive days, as well as sales of rights to acquire residential property (e.g., pre-sale contracts).
Tax Treatment:
- Profits from flipped property are treated as business income, not capital gains.
- The principal residence exemption does not apply.
- GST/HST may apply to assignment sales.
Exemptions:
The rules do not apply if the sale is due to certain life events, including death, marital breakdown, addition of family members, serious illness or disability, eligible work relocation, involuntary job loss, insolvency, threat to personal safety, or property destruction/expropriation.
Comparing Federal Flipping Rules and BC Flipping Tax
| Feature | Federal Flipping Rules | BC Home Flipping Tax |
| Effective Date | January 1, 2023 | January 1, 2025 |
| Administration | Canada Revenue Agency | Province of BC |
| Holding Period Threshold | < 365 days | < 730 days |
| Tax Treatment | Business income | Separate tax (up to 20%) |
| Principal Residence Exemption | Not allowed | Deduction up to $20,000 |
| Exemptions | Life events | Life events, commercial use, exempt entities |
| Filing Requirements | Income tax return | Separate tax return within 90 days |
| GST/HST Applicability | May apply to assignment sales | Not applicable |
Change in Use Rules
A change in use occurs when the purpose for which a property is held or used changes. Common examples include converting a personal-use property to income-generating, converting a commercial property to residential use, or switching from long-term rentals to short-term rentals.
Income Tax Treatment:
- Personal to Rental Use: You are deemed to have disposed of the property and reacquired it at fair market value. If it’s worth more now, you could face a capital gain unless you file an election to defer, subject to eligibility.
- Rental to Personal Use: You may be deemed to have disposed of the property at fair market value. Similarly, if it’s worth more now, a capital gain may be triggered unless you file an election to defer the gain if conditions are met.
GST/HST Implications:
A change in use, such as converting a long-term residential rental into a short-term rental (e.g., Airbnb) or vice versa, triggers specific tax consequences under the Excise Tax Act, resulting in self-assessment obligations. If a property previously used for short-term rental is converted to long-term residential, the owner must self-assess GST/HST based on the property’s fair market value at the time of the change. Additionally, if a property that was used for short-term rentals is later sold, the sale is generally subject to GST/HST, and the tax must be charged to the purchaser.
Bottom Line:
Both federal and BC rules target short-term property flipping, but with different thresholds and tax treatments. Exemptions exist for life events and certain property uses. Filing requirements and tax rates differ between federal and provincial rules. Change in use of property can trigger significant tax consequences, including GST/HST self-assessment.
If you have questions about how these rules may affect your situation, please contact us at realestate@lohncaulder.com with your inquiries.