The new federal home flip tax is likely to have a greater impact on people considering flipping homes than on those who make a living from it.
Fraser and Vanessa Nibo are the owners of Saskatoon-based Nibo Estates. The couple has experience flipping homes, buying multi-family and single-family rental properties, and a variety of other real estate related tasks.
The latest federal budget, released earlier this month, proposed an anti-resale tax that would apply to residential properties sold after January 1, 2023, within one year of the purchase date.
Fraser explained that the new rules are designed to tax business and activity income on principal residences that have been owned for less than 12 months.
“This is basically targeting people who live in a house for a few months, then sell it and pay no tax at all,” Fraser said. “The government doesn't like that, and for good reason.”
The Nibos said that on average, they buy, renovate and sell a home within four to six months.
There are many changes that will come to the real estate market as a result of the budget, but they are not likely to have a major impact on their business.
They are buying homes with the intent of reselling them within six months, and because that is part of their business, they are already paying the higher tax rate, Fraser said.
“We've always paid tax as a company, so it hasn't really affected us as a business,” Vanessa said.
“I think what the government is going after is individual home flippers who are looking to buy a home, live in it, renovate it for 11 months and then sell it within a year,” Fraser explained, adding that many people who flip homes themselves would not declare capital gains on the project.
“They were essentially getting their home tax-free.”
Fraser said the rationale for the rules comes as the government recognises there are problems with rising home prices in Canada's larger cities, such as Toronto and Vancouver, and has been looking for solutions in the form of different rules.
He said the measures included in the budget would effectively remove several loopholes in the real estate industry.
Fraser said while he thinks it's a good move by the government, the real issue is Canada's housing supply, or lack thereof.
“I don't think (the tax) is the solution. I think it's clearly a supply issue,” he explained.
The combination of a surge in immigration and encouragement to move to Canada, combined with not building enough housing to match the number of people coming to Canada, has created a housing shortage, which is compounded by high home prices. With a shortage of housing, sellers can expect to ask for and receive higher prices.
Fraser said only about 250,000 housing units, including single-family homes, apartments and other living spaces, are built in the country each year.
Fraser said the rental units at Nibo Estates alone are currently 100 percent full.
“We have a lot of people migrating to Saskatchewan and Canada, but we don't have enough space to accommodate them,” Fraser said.
Vanessa felt there was another problem with the home flipping tax: While she understood the government's intent, she didn't think home flippers would shoulder the burden of the tax.
Instead, she predicts flippers will build the additional tax into their budgets and raise the prices of their homes, so the money is calculated and paid by homebuyers.
“I'm worried that it won't be the scalpers who lose out, but the buyers on the other side who will have to pay,” Vanessa said. “Someone has to pay that money.”
“Local people are being priced out of bigger city markets so something had to be done,” Fraser added.
He said programs aimed at curbing rapid rent increases and helping with other housing issues are being implemented.
Adding GST and HST to transfers is another measure that Fraser attributes to the situation in major cities. He said people will put money into buying a home, add a clause in the contract that allows them to transfer the property, and then find a new buyer to reap the profits.
Rising home prices have made the housing market valuable for sellers and expensive for buyers at the moment.
From rising interest rates to continued fluctuations in construction costs, supply and overall prices due to inflation, there are a number of variables that further complicate the housing situation Canadians face.
Fraser said that while COVID-19 may be having some effect on the current housing market, he doesn't believe it's the main factor — rather, he believes there's “pent up demand” that's not being fully met.
Responding to the various considerations faced by those seeking a new living space, Vanessa noted that while theirs isn't a “love it and sell it” type of business, it seems more people are becoming interested in tackling renovations and redecoration of their existing homes, rather than considering selling in order to find their dream space.