Taxation on Different Types of Property Ownership in BC
When dealing with property ownership and taxation in British Columbia, it’s important to distinguish between different types of properties and how capital gains and business income taxes apply to each. The taxation varies based on the property’s use, whether it’s a primary residence, an investment property, or a business property.
1. Primary Residence and Taxation
A primary residence is the home where you live most of the time. If you sell your primary residence, you may be eligible for the Principal Residence Exemption (PRE), which allows you to avoid paying capital gains tax on any profit from the sale.
To qualify as a principal residence:
- You must have lived in the property for all or part of the time you owned it.
- You can only designate one property as your principal residence at any given time for each family unit.
Taxation Issues:
- Multiple properties: If you own multiple homes (e.g., a city home and a cottage), only one can be designated as your principal residence in a given year.
- Rental conversion: If a property is no longer used as a primary residence (e.g., it becomes a rental property), the portion of the gain during which it wasn’t your primary residence may be subject to capital gains tax.
2. Properties Subject to Capital Gains Tax
Properties that are not used as your primary residence, such as rental properties, vacation homes, or those held for investment purposes, do not qualify for the Principal Residence Exemption and are subject to capital gains tax.
As of June 25, 2024, the rules for taxing capital gains have changed:
- The capital gains inclusion rate has increased from 50% to 66.67% for individuals on gains above $250,000 in a given year.
- For gains below $250,000, the inclusion rate remains at 50%.
- For corporations and most types of trusts, the new 66.67% inclusion rate applies to all capital gains, with no $250,000 exemption.
For example, if you sell a rental property or a vacation home and make a $300,000 gain, under the new rules, $ 200,000 of that gain (two-thirds) will be taxable. Under the previous rules, only $150,000 would have been taxable.
Vacation Homes:
Vacation homes generally do not qualify for the Principal Residence Exemption unless you’ve lived in them and designated them as your principal residence for a portion of the time. If this designation hasn’t been made, the gain from selling the vacation home will be fully subject to capital gains tax at the applicable rate.
3. Properties Subject to Business Income
If a property is bought and sold as part of a business activity, such as house flipping, it is subject to business income tax rather than capital gains tax. The key distinction here is whether the property was acquired with the intention of earning a profit from its sale as part of a business.
Properties classified under business income include:
- House flipping: If you buy properties with the intention to renovate and sell them for profit, the CRA may consider these activities as a business. Profits from the sale are therefore taxed as business income.
- Rental properties: If you own and manage multiple rental properties extensively, or if your rental activities resemble business operations, the CRA could classify your rental income as business income. In such cases, the full profit from the sale is taxable as business income rather than just the capital gain.
Business Income Tax:
- Unlike capital gains, where only a portion of the gain is taxable, 100% of the profits from business income are taxed.
- For example, if you flip a house and make a $100,000 profit, the entire $100,000 is considered business income and is fully taxable.
Planning Considerations:
- Capital gains vs. business income: The CRA looks at the intention behind the purchase and sale of the property. If it determines that the property was purchased for business purposes, the entire profit from the sale will be taxed as business income, which may result in a higher tax burden compared to capital gains.
- Strategic sales: Some investors may look to spread out property sales over multiple years to remain under the $250,000 capital gains threshold and minimize the taxable amount under the new rules.
How I Can Help
If you are looking to purchase or sell an investment property, I can help with that. As a 10-year Master Medallion member, an associate broker, an MBA candidate, and an investment property specialist, I bring two decades of experience and expertise to help you plan your next investment property purchase or sale. Let me help you maximize your returns and strategically plan your investments.
Looking to create your investment strategy? I can help with that.
Get in touch today and let me help you find just the right place. Click on the link or me at 604-376-3350 to get the process started.
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ABOUT LIZ PENNER YOUR BEST LANGLEY REAL ESTATE AGENT
Liz Penner is a top-selling licensed real estate salesperson with the Fraser
Valley Real Estate Board and has been a top-selling realtor specializing in the residential resale of condos, townhomes, and houses for over a decade. Liz assists residents of the Langley and Surrey areas to sell real estate while looking out for the client’s best interests. Liz also helps first-time homebuyers, families, and repeat purchasers with their property search process, ensuring that her clients get access to the very best homes on the market while receiving excellent service ensuring that they find the perfect place to call home.
Liz holds a BBA in leadership and has completed a variety of specific training through the Fraser Valley Real Estate Board in the areas of selling strata properties, foreclosures, estate sales, and new construction properties. Liz is also well versed in POAs, the Strata Property Act, and more. If you are looking for a knowledgeable and professional real estate agent that is willing to do everything possible to ensure that you get top dollar for the sale of your home or to find the dream home you are looking for in the Surrey and Langley, BC areas then get in contact today.
If you are looking for a knowledgeable and professional real estate agent that is willing to do everything possible to ensure that you get top dollar for the sale of your home or to find the dream home you are looking for in the Surrey and Langley, BC areas then get in contact today.
WHY LIST YOUR HOME FOR SALE WITH LIZ PENNER
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- I’ve helped sell over 400 properties throughout the Langley and Cloverdale area, and I’d love the opportunity to do the same for you.
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- I’ve got a solid toolkit to pull from when a problem arises. I take my job seriously each time, and I will make sure you get top dollar for your Fraser Valley, Langley, or Cloverdale home, smooth sailing, or otherwise.
