Up to 20% provincial tax on the profits of assignments of contracts and houses sold within 2 years of purchase after Jan 1 2025. The Flip Tax is in addition to Federal Income Tax due on profits. “the intention of the tax is to discourage short-term holding of property for profit.”
There are three scenarios where this is going to generate new revenue or discourage activity.
- The traditional commercial house flipper. Who buys, renovates and resells. Never occupies the property during the flip. Not many of these.
- The mom and pop house flipper. Who buys, renovates/builds and moves in/claims as principal residence to avoid capital gains, then sells 1 year later. Not many of these. Now they’ll wait 2 years.
- Speculators & Assignors – people who buy presales with the intention to resell or assign the rights to purchase before or right after completion. More of these.
An extra 20% tax on pre-sale flips will discourage mass speculation and leave more opportunities for end users to get into the market at lower presale rates instead of picking up units from flippers. In many regions the presale market is dominated by speculators. Flippers/Speculators will have to hold onto the homes longer to avoid this tax. Or modify their investment strategy.
Shortcomings:
- Traditional fix and flips don’t make up many transactions and may even be a necessary niche. The majority of people prefer to buy a renovated home.
- Just-purchased homes undergoing renovation are usually vacant regardless of whether it’s a flipper or end user. Supply is unaffected.
- Mom and pop flippers/builders are already occupying the properties to avoid Income Tax. Supply is unaffected.
The part that is absurd and infuriating is that it applies to principal residences sold within 2 years. When applied to a regular person who is not in it for the profit, it’s an unfair tax because it decreases that person’s capital wealth for no reason. The purpose of the tax is to maximize housing supply. Someone occupying a home and moving every year is NOT the cause of the problem this tax is designed to solve.