Purchasing your first home (or your fifth!) can be a confusing and intensive process. Add in the myriad of tax changes different levels of government have made in response to the housing crisis, and it can be overwhelming.
As a realtor, it’s my job to be up to speed on all the changes and how they can impact my clients’ bottom line. Whether you’re a first-time buyer or a seasoned real estate investor, I’ve got you covered.
Tax Changes
In their budget announcement on February 22, 2024, the provincial government unveiled several new housing initiatives. There are two key tax changes that prospective buyers should be aware of:
- BC Home Flipping Tax
- Property Transfer Tax Exemptions
BC Home Flipping Tax
Starting in January 2025 the BC Home Flipping Tax will apply to presale assignments and any resale residential property sold within two years of purchase. The tax is not yet legislated but scheduled to come into effect on January 1, 2025. The purpose of the tax is to support housing supply and discourage house flipping.
If a property is sold within a year of purchase, there will be a 20 % tax rate on the income earned. The tax rate is pro-rated from days 366-730 days after purchase, declining to zero percent at the two year mark. (British Columbia Ministry of Finance, 2024)
Exemptions
Recognizing that life can sometimes be unpredictable, the government has identified a list of circumstances that may make you eligible for an exemption. These circumstances include separation or divorce, death, disability or illness, involuntary job loss and insolvency amongst others. The list is provided at https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax and it is noted it does not reflect an exhaustive list.
Federal vs Provincial Tax Rules
It’s important to note that the BC Home Flipping tax is separate from and in addition to the federal property flipping rule that came into effect on January 1, 2023. This rule ensures that profits from the sale of a flipped property (owned by the taxpayer for less than one year) are taxed as business income. They can no longer be treated as a capital gain and the Principal Residence Exemption is not available.
Similar to the provincial rules, the federal rule also allows for exemptions in the case of exceptional life circumstances.
More information on the federal Residential Property Flipping Rule can be found at Federal Residential Property Flipping Rule
Property Transfer Tax Exemptions
While no one likes a new tax, there was some good news in the budget announcement with an expansion of the existing Property Transfer Tax (PTT) Exemptions for first-time home buyers, newly built homes and purpose-built rental buildings. McCarthy Tetrault published an excellent summary of the changes from the new budget in their Lay of the Land Blog.
“Beginning April 1, 2024, the threshold for the PTT exemption will be extended to include homes with values of up to $835,000. First-time home buyers will be exempt from paying PTT on the first $500,000 but tax will be payable for the portion of the value between $500,000 and $835,000. For amounts over $835,000, the exemption received for the initial $500,000 will get phased out. For properties over $860k, there will be no PTT exemption and tax will be payable on the entire purchase amount.” (McCarthy Tetrault, 2024)
The newly built home exemption has been increased from $750,000 to $1,100,000. A partial exemption is also available if the value is just above the threshold. The home must be a principal residence and meet the other qualifying criteria. More information is available on the Government’s website
Reach out for more details on this and answers to all your real estate questions.
Sources:
Friesen, Brenna (2024) BC Government Announces New Housing Measures in 2024 Budget, British Columbia Real Estate Association https://www.bcrea.bc.ca/advocacy/flipping-tax-announced-by-bc-government/
British Columbia Ministry of Finance. (2024) BC Home Flipping Tax https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax
Government of Canada. (2023). Residential Property Flipping Rule,https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/residential-property-flipping-rule.html
Smythe, Scott and Kasting, Nick.(2024). 2024 B.C. Budget: More Changes to B.C’s Real Estate Landscape, McCarthy Tetrault https://www.mccarthy.ca/en/insights/blogs/lay-land/2024-bc-budget-more-changes-bcs-real-estate-landscape#_ftn3