British Columbia's Flipping Tax

What is the BC Flipping Tax?

The Flipping Tax applies when taxable residential property is disposed of within 730 days of acquisition. "Disposition" is defined broadly: it includes not only sales but also certain transfers, assignments, and income-tax-deferred transactions. A "disposition" occurs when the first installment of consideration is received or receivable.

Key definitions under the Act include:

  • "Taxable property"—a beneficial interest in residential property or a right to acquire a beneficial interest in residential property.

  • "Residential property"—a "housing unit" located in BC together with any land subjacent or immediately contiguous to the housing unit; and land located in BC (including vacant land) together with any building or other structure on or in the land if the land is zoned all or in part for residential use.

  • "Housing unit"—a self-contained unit of residential accommodation with cooking, sleeping, bathroom and living area facilities, but does not include a float home or manufactured home.

How Much is the Tax?

Within the first year post-acquisition, the tax is 20% of the net taxable income, which is proceeds minus cost of acquisition and the cost of improvement. The tax phases out proportionally over the second year until day 730. There is a primary residence deduction of $20,000.

Note that this net taxable income is calculated differently from the calculation of income under the Income Tax Act. It's important to realize that this is a new tax, and even (or perhaps especially) experienced advisors should not trust their usual instincts about what counts as cost of acquisition. For example, maintenance costs are not added to the cost of improvement or acquisition, meaning they are not at all part of the net income calculation for this tax.

Who Must File a Flipping Tax Return?

If you dispose of residential property within 730 days, you generally must file a Flipping Tax return even if an exemption applies.

A filing is not required if:

  • you fall within certain narrow statutory exceptions (e.g., government, charity, Indigenous land); or

  • the property was used exclusively for a commercial purpose.

Importantly, trustees of bare trusts must file if the beneficial owner would be required to file.

Key Exemptions

Many exemptions exist, but most require filing. Exemptions include:

Life circumstances:

  • Death

  • Serious illness or disability

  • Divorce or relationship breakdown

  • Job loss or required relocation

  • Safety threats

  • Addition of household members (e.g., marriage, parent moving in)

Property-related exemptions:

  • Building or developing new residential property

  • Substantial renovations

  • Delays in construction over one year

  • Commercial-use properties

  • Indigenous land

  • Transfers to related persons (in specified circumstances)

  • Builders and developers selling in the ordinary course of business

  • Primary residences

Things to Watch For

When does the clock start and stop?

The 730-day clock includes both the acquisition date and the disposition date. Further, the Act contains important nuances to note:

  • If consideration is receivable before closing, the disposition date may be earlier than expected. This is because the disposition date can be the date the first instalment of consideration is received or receivable. This is an important consideration in drafting the purchase and sale agreement.

  • For pre-sale contracts, the acquisition date is the date the pre-sale contract is signed.

  • For transfers between related persons, the "acquisition date" may trace back through the chain of related ownership, even if a person in the chain is not related to another in the chain.

Tax-deferred rollovers under the Income Tax Act do not protect you

The Flipping Tax rules operate independently of the Income Tax Act. This means a Flipping Tax liability can arise even when no gain is recognized under federal tax rules. Examples of when this might happen include situations which would ordinarily be subject to a rollover or amalgamation. In fact, not only does the tax apply in these situations, but the cost of acquisition will generally not be the cost the original owner paid; the cost of acquisition will often be $0, because such rollovers generally occur without any actual consideration changing hands!

Special thanks to Mondaq

Jane Zhao