Formally announced in the last budget cycle, the new BC Home Resale Tax (HFT) now has an implementation date.
British Columbia's Finance Minister, Kathleen Conroy, today announced that a new tax targeting home flipping and short-term speculation will officially come into effect on January 1, 2025, but it should be noted that the tax will still apply if the property was purchased before that date.
Further details of the tax system were also revealed.
This tax applies to the sale of residential property that has been owned for less than two years, and the seller is taxed up to 20% of the proceeds from the sale. For properties sold within one year of purchase, the tax rate is 20%. Over the second year (from 366 to 730 days after purchase), the tax rate gradually decreases to 0%.
The types of residential property to which this tax applies include dwelling units and property zoned for residential use as well as income from the transfer of contracts to purchase such property. It does not apply to land or portions of land used for nonresidential purposes.
State governments have introduced HFT as a way to measure the economics of homeownership in response to instances where properties change hands multiple times in a short period of time, with owners only holding onto their new properties for a few months or even weeks. With each transaction, this speculative activity drives up home prices as investors seek to make quick profits.
According to the provincial government, those more likely to sell their homes within two years tend to be middle-aged and high-income earners, and women who sell their homes within two years have lower annual incomes on average than men who sell their homes within two years.
“After decades of the housing market serving the interests of investors and speculators, it's becoming harder for even those with decent incomes to buy a home. And that doesn't sit well with our government,” said Governor Conroy in his 2024 State of the State Budget address today.
“Things are about to get tougher for people looking to make a quick buck by flipping homes, as any gains made by selling a home within two years of buying it will be taxed.”
There are several exceptions to HFT, including sellers who have experienced separation/divorce, death, disability/illness, relocation, involuntary unemployment, change in household membership, personal safety, bankruptcy, etc. Other exceptions are also provided for “persons who increase the housing supply or are engaged in construction and real estate development.”
Additionally, individuals who sell their primary residence within two years of purchasing it can exclude up to $20,000 when computing their taxable income.
“We all understand that life can change quickly and there will be exceptions,” Conroy continued.
“But whether it's real estate transactions, money laundering, organized crime, or whatever it may be, governments will always go after bad actors.”
HFT is not expected to be the primary source of revenue, with revenues expected to be $11 million in fiscal year 2024/2025, and $43 million each in fiscal years 2025/2026 and 2026/2027. All revenues generated will be used to fund the construction of new affordable housing, particularly for middle-income households.
The HFT is the state government's second major intervention policy, following the previous introduction of a state speculation and vacant home tax.
In addition to implementing HFT, Budget 2024 will create new real estate transfer tax exemptions to improve home affordability for more first-time home buyers.
The provincial government projects home sales will rebound in 2024 as the impact of rising interest rates fades, rising 10% this year and 7% in 2025. The Bank of Canada is also expected to begin a new cycle of gradually lowering interest rates starting in the second half of 2024.