Flipping Tax & Capital Gains: How to Navigate the New Rules

Maximizing Your Rental Property Investment in 2024

New tax proposals have been announced for British Columbia. Key highlights include an increase in the inclusion rate for Capital Gains, a speculation tax effective from January 2024, and a flipping tax effective from January 2025.

Various strategies can be employed such as making use of the capital gains reserve or incorporating the rental property business. The BC home flipping tax applies to residential properties owned for less than two years, with rates at 20% for sales within 365 days, and will decline to zero between 366 and 730 days. The new flipped property rule considers a gain from the disposition of residential property in Canada after 2022 that was owned for less than 365 days to be fully taxable as business income regardless of intention.

To minimize capital gains tax on rental properties, there are several options such as making a gift or inherited property your principal residence, putting earnings in a tax shelter, or making use of the capital gains reserve. If planning to flip a home, be aware of the new tax rules effective from January 2023.

Tips to Minimize Capital Gains Tax:

Exemption for Principal Residences
Make a Gift or Inherited Property Your Principal Residence
Incorporate Your Rental Property Business
Put Your Earnings in a Tax Shelter
Make Use of the Capital Gains Reserve
Capital Losses Offset
Carry Forward Your Losses

 

Starting January 1, 2024, the existing Speculation and Vacancy Tax Act will undergo minor changes. Registered leases in the Land Title Office will now be responsible for paying the tax, instead of the property owners.

Effective January 1, 2025, a proposed BC home flipping tax will apply to income from the sale of a property, including presale contracts, in British Columbia, if the property was owned for less than 730 days. This is separate from federal property flipping rules and is not harmonized or administered with the federal or B.C. income tax. The tax is imposed under the Residential Property (Short-Term Holding) Profit Tax Act.

The BC home flipping tax applies to residential properties owned for less than two years and will have rates at 20% for sales within 365 days, and will decline to zero between 366 and 730 days.

Starting January 2023, the Principal Residence Exemption will no longer apply if you plan to flip a home while owning it for less than 365 days. Speak to a professional accountant if this situation may apply to you.

The BC home flipping tax applies to net taxable income from the sale of taxable property that was owned for less than 730 days. Your net taxable income is calculated by multiplying your taxable income by your tax rate, less the primary residence deduction.

Under the new rule, a gain from the disposition of a residential property in Canada after 2022, owned for less than 365 days, is considered fully taxable as business income regardless of intention.

To minimize capital gains tax in Canada, designate the property as your principal residence for each year you own it. The number of years that you can claim the principal residence exemption is limited to four years.

For more information:

Government of BC – BC Home Flipping Tax

Government of BC – Speculation and Vacancy Tax Act

Government of Canada – Changes in Use of Your Property

 

Reach out, we are here to help and answer any questions you may have!

Interested in moving to Kelowna, download our Relocation Guide, or thinking of selling check out our Listing Package.

Five Key Real Estate Trends for 2024

The real estate industry is constantly evolving, and 2024 is shaping up to be a year of significant change. To stay competitive, agents need to be aware of the following five key trends: digitalization, changing buyer preferences, suburban markets, data analysis, and sustainability. Real estate websites offer easy-to-buy products to help agents drive engagement and turn prospects into leads.

The Rise of Digitalization

• Virtual tours, digital staging, and AI-powered tools are revolutionizing the way we buy and sell homes.

Shifting Buyer Preferences

• Co-living spaces, multi-generational living, sustainability, and outdoor amenities are top priorities for today’s buyers.

The Rise of Suburbs and Secondary Markets

• Many are migrating towards suburbs and smaller towns, creating demand for agents who specialize in these markets.

 

 

The Growing Importance of Data and Analytics

• Agents who leverage data analysis tools can gain valuable insights into market trends and buyer behavior.

Increased Focus on Sustainability

• Environmental concerns are driving demand for sustainable properties with energy-efficient features and green building certifications.

 

 

Kelowna, a rapidly growing city in Canada, has witnessed a surge in the selling price of townhouses. At the end of 2023, the benchmark selling price of a typical townhouse in Kelowna was $731,600, which is a bit higher than the previous year-end price of $726,000. However, it’s still $97,400 less than the record-high price of $829,000 set in May 2022.

According to the Community Trends report, Kelowna has grown faster than other fast-growing cities like Surrey. Between 2016 and 2021, the population of Kelowna increased by 13.5%, which is higher than the growth rate of 7.6% in British Columbia and 5.2% in Canada.

Kelowna is becoming one of Canada’s fastest-growing cities due to its excellent cuisine, pleasant weather, and easy access to nature and outdoor activities.

Some 492,083 residential properties are forecast to trade hands via Canadian MLS® Systems in 2024, a 10.5% increase from 2023. This is mostly unchanged from CREA’s previous forecast. The national average home price is forecast to climb 4.9% on an annual basis to $710,468 in 2024.

Interested in moving to Kelowna, download our Relocation Guide, or thinking of selling check out our Listing Package.

Benefits Offered to First-time Home Buyers

First-Time Home Buyer Incentive

• Eligible first-time homebuyers who have the minimum down payment for an insured mortgage can apply to finance a portion of their home purchase through a shared equity mortgage with the Government of Canada.

First-Time Home Buyers’ (FTHB) tax credit

• $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief.

Home Buyers’ Plan

• Withdraw up to $35,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or a related person with a disability. (up from the current level of $25,000 where it has been for the last decade.)

GST/HST New Housing Rebate

• Recover part of the GST or HST that you paid on the purchase price or cost of building your new house, on the cost of substantially renovating or building a major addition onto your existing house, or on converting a non-residential property into a house.

THE FINANCIAL BREAKDOWN

Couple earning $120,000

$480,000 total purchase

-$24,000 down payment

-$48,000 matched by CMHC

=$408,000 mortgage

WHAT YOU CAN GET FOR under $500,000

Based on a couple earning $120,000 annually, we’ve compiled a look at some properties you can get in major housing markets in Canada under the 500 000 price range.

In Kelowna: currently houses/townhouses listed in Rutland & WEC, under 2300 sqft, 2-5 beds & 2-3 baths.

Single family-66

Strata-367

In Toronto: No houses listed but one-bedroom condos are available, typically 600-1,000 sq feet. Condos have more rooms and additional bathrooms as you get away from the city core. There is almost no supply below $300,000.

In Vancouver: No houses listed but one-bedroom condos are available, typically 600-1,000 sq feet. More rooms and additional bathrooms as you get away from the city core.

In Calgary: You can find listings for two-bedroom bungalow houses downtown, along with two-bedroom condos over 900 square feet.

In Winnipeg: Limited supply at this price range. Detached houses are available, however, with two-plus stories and multiple rooms. Large condos over 1,000 sq feet are available closer to a $300,00 price point.

THE FINE PRINT

To qualify, you must:

• be a first-time homebuyer.
• have a minimum down payment starting at 5% with interest rates comparable to those with a 20% down payment
• have a household income of less than $120,000 per year and the mortgage and incentive amount together can’t be more than four times the household income.

Other notes:

• The program caps out at four times the applicant’s annual income, which means it can only help homeowners looking to buy properties where the mortgage value plus the CMHC loan don’t exceed $480,000
• CMHC would kick in up to 10 percent of the value of a newly built home, or five percent of the value of a resale.
• It’s not free money -buyers pay back what they owe, plus a corresponding share in any gains, down the line.
• Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20% of the purchase price.
• Buyers will not be exempt from the federal “stress test” regulations (a mandatory mortgage qualification using the five-year benchmark rate published by the Bank of Canada or the customer’s mortgage interest rate plus 2%)

 

FOR MORE INFO FOLLOW THESE LINKS TO CMHC:

• CMHC financial info & calculators: https://www.cmhc-schl.gc.ca/en/buying/financial-information-and-calculators
• Mortgage Loan Insurance for Consumers: https://www.cmhc-schl.gc.ca/en/buying/mortgage-loan-insurance-for-consumers

 

ARTICLES USED:

(https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/government-of-canada-offers-homeownership-incentives)

(https://www.cbc.ca/news/business/budget-cmhc-home-buyers-1.5063204)

(https://www.lowestrates.ca/blog/homes/cmhc-first-time-home-buyer-incentive-fthbi-guide)

Big Change to Strata Rules

Significant changes have been recently made to the strata rules.  The Vrecko Real Estate Group explains what they are and how they will affect you when buying and selling a strata title property.    

On November 21, 2022, Bill 44 was introduced and took immediate effect to change certain key by-laws to all strata properties in the province of BC.  These changes to strata rules affect rental rules, age restrictions, and electronic meetings.  

No Rental Restrictions Allowed

• There shall be no rental restrictions authorized in any strata corporations in BC.
• A developer will no longer be forced to issue Rental Disclosure Statements and strata will not need to keep those records.
• The strata corporation will not be allowed to screen tenants, authorize screening criteria, get the approval of tenants, require the insertion of terms in tenancy agreements, or restrict the rental of a strata lot.

The most significant change to the strata rules here is lifting rental restrictions on those strata buildings that currently do not allow rentals.  

As a buyer of a strata property, you no longer need to limit your search if you plan to use the property as a rental.  This will give the buyer more options in buildings that were restricted before the new change in the strata rule.  

If you are a property owner and considering selling your condo in Kelowna or the area, this change in the strata rule will benefit you if you are currently in a building with restrictions. 

The Upside

This change could provide more rental options for those looking for rental units and attract investors to purchase rental units in buildings they previously could not.  

The Downside

While the change could provide more rental options, some property owners prefer when buildings are mainly owner-occupied.   Furthermore, strata councils now do not have the right to be involved in the screening process which may be risky if a homeowner is not familiar with the process.  

Age restrictions

• Age restriction bylaws will only be allowed for buildings that are designated for ages 55 and up.
• The age restriction would not apply to a caregiver who resides in the strata lot, providing care to another person who lives in the strata lot and is dependent on caregivers for disabilities, illness, or frailty.

Before the change to the rule, condos, and townhouses in Kelowna had the right to have age restrictions under 55+.  Aside from the well-known 55+ communities, other common age restrictions were 19+ and 45+.  

Electronic meetings

All strata corporations will be allowed to hold yearly and special general meetings by phone or other electronics (no bylaw required)

Issues using voting cards and secret ballots at electronic general meetings will be decided by:

The electronic means must enable the chair of the meeting to identify whether a person attending by electronic means is an eligible voter.

There will be no requirement to issue a voting card to an eligible voter in a yearly or special general meeting by electronic means.

An eligible voter attending a yearly or special general meeting by electronic means will not be required to vote by secret ballot.

Pets

The section about limits to pets is being reworded for clarification.

Additional information

Strata may continue to have bylaws that prevent or diminish short-term rentals such as Airbnb and VRBOs.

Residential Tenancy Branch policy guidelines have been updated to show that strata can grant a notice to terminate a tenancy and apply to the Residential Tenancy Branch for conflict settlement in place of the landlord. Visit the BCFSA website here to learn more.