New Flipping Tax and Property Transfer Tax Exemption

New housing-related measures were unveiled in the provincial government’s Budget 2024, notably the BC Home Flipping Tax and adjustments to Property Transfer Tax exemptions. While recognizing the provincial government's commitment to enhancing housing attainability, the introduction of another "flipping tax" is anticipated to have a limited impact on housing accessibility.

BC Home Flipping Tax
The BC Home Flipping Tax imposes a 20% tax on gains from the sale of a home within a one-year period, with a pro-rated tax on sales within a two-year timeframe. Applicable to both properties and contract assignments, this tax is supplementary to existing federal and provincial income taxes, including the federal anti-flipping tax. Exemptions are available for specific life circumstances, such as the creation of rental accessory dwelling units to enhance housing supply.

According to a preliminary analysis by the BCREA Economics Department, the flipping tax is expected to reduce home sales by 1-2% over a three-year period. However, given the limited prevalence of short-term flipping (less than 2% in both Vancouver and Victoria), its impact on prices and housing attainability remains minimal.

Despite the modest effect, the implementation of a disincentive to sell within a two-year period may lead some potential sellers to delay listing, resulting in reduced listing inventory. Consequently, home prices may experience an increase compared to a no-tax scenario. Ultimately, the way to prevent harmful short-term speculation in the housing market is to ensure housing is abundant. The new measures will come into effect in 2025.

Property Transfer Tax Exemptions
Furthermore, the government has adjusted the threshold for the First Time Homebuyer's Property Transfer Tax exemption to align with current real estate values. The revised exemption now applies to homes with a fair market value of up to $835,000, a significant increase from the previous threshold of $500,000. This adjustment acknowledges the inflated nature of real estate values and incorporates a phased-out range up to $835,000, while homes valued below $500,000 remain completely exempt from the tax. The newly built home exemption reduces or eliminates the PTT on qualifying purchases of a principal residence. The fair market value threshold for a full exemption for newly built homes is increasing from $750,000 to $1,100,000.

In principle, a reduced Property Transfer Tax for first-time home buyers and people purchasing newly constructed homes is widely supported. However, while in favour of measures that increase first-time home buyers’ abilities to purchase properties, it's critically important that housing supply is increased so bidding wars don't escalate when acquiring those homes. More detail is needed on the Property Transfer Tax exemption for purpose-built rentals to understand its impact on housing attainability for British Columbians.

The real question that is not being discussed, is how much supply is actually needed? If we build more homes, there is likely to be a corollary increase in the number of people who want to live here, in arguably one of the most desirable destinations. A concept economists describe as "induced demand"—whereby increasing the supply of something makes people want that thing even more. Build it, and they will come.
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