Flipping Tax & Capital Gains: How to Navigate the New Rules
Flipping Tax & Capital Gains: How to Navigate the New Rules
Maximizing Your Rental Property Investment in 2024
New tax proposals have been announced for British Columbia. Key highlights include an increase in the inclusion rate for Capital Gains, a speculation tax effective from January 2024, and a flipping tax effective from January 2025.
Various strategies can be employed such as making use of the capital gains reserve or incorporating the rental property business. The BC home flipping tax applies to residential properties owned for less than two years, with rates at 20% for sales within 365 days, and will decline to zero between 366 and 730 days. The new flipped property rule considers a gain from the disposition of residential property in Canada after 2022 that was owned for less than 365 days to be fully taxable as business income regardless of intention.
To minimize capital gains tax on rental properties, there are several options such as making a gift or inherited property your principal residence, putting earnings in a tax shelter, or making use of the capital gains reserve. If planning to flip a home, be aware of the new tax rules effective from January 2023.
Tips to Minimize Capital Gains Tax:
Exemption for Principal Residences
Make a Gift or Inherited Property Your Principal Residence
Incorporate Your Rental Property Business
Put Your Earnings in a Tax Shelter
Make Use of the Capital Gains Reserve
Capital Losses Offset
Carry Forward Your Losses
Starting January 1, 2024, the existing Speculation and Vacancy Tax Act will undergo minor changes. Registered leases in the Land Title Office will now be responsible for paying the tax, instead of the property owners.
Effective January 1, 2025, a proposed BC home flipping tax will apply to income from the sale of a property, including presale contracts, in British Columbia, if the property was owned for less than 730 days. This is separate from federal property flipping rules and is not harmonized or administered with the federal or B.C. income tax. The tax is imposed under the Residential Property (Short-Term Holding) Profit Tax Act.
The BC home flipping tax applies to residential properties owned for less than two years and will have rates at 20% for sales within 365 days, and will decline to zero between 366 and 730 days.
Starting January 2023, the Principal Residence Exemption will no longer apply if you plan to flip a home while owning it for less than 365 days. Speak to a professional accountant if this situation may apply to you.
The BC home flipping tax applies to net taxable income from the sale of taxable property that was owned for less than 730 days. Your net taxable income is calculated by multiplying your taxable income by your tax rate, less the primary residence deduction.
Under the new rule, a gain from the disposition of a residential property in Canada after 2022, owned for less than 365 days, is considered fully taxable as business income regardless of intention.
To minimize capital gains tax in Canada, designate the property as your principal residence for each year you own it. The number of years that you can claim the principal residence exemption is limited to four years.
For more information:
Government of BC – BC Home Flipping Tax
Government of BC – Speculation and Vacancy Tax Act
Government of Canada – Changes in Use of Your Property
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