BC's new flipping tax will lower home sales by nearly 2%: forecast | Daily Hive

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A new industry report by the British Columbia Real Estate Association (BCREA) suggests expectations should be tempered for the intended impact the provincial government’s new Home Flipping Tax (HFT) will have on the housing market.

Last month, as part of its budget announcement, the provincial government announced the flipping tax to reduce speculation and help curb the ascent in home prices will come into effect at the start of 2025.

This new tax will apply on the sale of the residential property held by the owner for less than two years, with the seller being taxed up to 20% on their income from the sale. The tax rate will be 20% for properties sold within the first year of purchase. Over the second year (366 days to 730 days after purchase), the tax rate will gradually decline to 0%.

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But according to the BCREA, they estimate the flipping tax will lower the number of home sales by only 1.7% over the first three years of the policy. This will also mean the flipping tax will have a small impact on home prices and housing affordability, which they say will be “essentially unchanged.”

BCREA also suggests the flipping tax could have the unintended consequence of decreasing housing supply and further tightening market conditions due to the policy lowering the available number of listings, with potential sellers delaying their listings.

While the flipping tax is not expected to generate significant revenue, the policy’s impact on curbing sales activity could have a greater impact on the provincial government’s much larger revenue stream from the Property Transfer Tax, which will see new exemptions for first-time buyers and new homes as part of this budget.

The provincial government is implementing the flipping tax as a measure of housing ownership affordability, in response to instances of properties changing hands multiple times over a short period, with owners sometimes holding onto their new acquisitions for merely months or even weeks. With each transaction from this speculative activity to earn a quick profit, the price of the home increases.

However, BCREA provides a different perspective: “By marketing and effectively staging homes, flippers facilitate the ‘search process’ for long-term buyers. When flippers fix up or renovate properties, they improve the stock of available housing, undertaking considerable risk in the process.”

According to their observations, the most common reasons why a household would change their principal residence include more living space, a better neighbourhood, proximity to family, lower housing costs, and a change in household size.

The provincial government has provided flipping tax exemptions for certain situations, including changes in household size, new jobs or transfers, health reasons, a new school, and forced sales. Nearly three-quarters of respondents in a recent survey of BC residents who moved within the last two years and owned their previous principal residence suggest that a potentially large proportion of flippers could be exempt. Furthermore, BCREA suggests no more than one-in-50 sales in BC are “flips.”

BCREA also cited the Bank of Canada’s latest data that shows 2.5% of all sales in Canada were of a home purchased within 12 months, with this figure slightly higher at 3.1% within Vancouver and Victoria. Various other estimates peg the proportion of homes purchased and sold in BC within two years to be between 7% and 10%.

BC’s flipping tax is in addition to the federal government’s new policy that treats the capital gains from flipped homes — federally defined as a sale that occurs less than one year after purchase — to be full business income, including on principal residences.

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