New Anti-Flipping Houses Tax January 1st
In case you didn't know...
If you or anyone you know is planning on flipping a house next year or beyond in Canada, the government has scheduled a new Anti-Flipping tax to take effect January 1st.
GOV's DEFINITION OF A FLIP:
They have described this as “purchasing real estate with the intention of reselling the property in a short period of time to realize a profit.”
WHAT DOES THIS TAX MEAN?:
Essentially, under the new tax law, anyone who sells a property which they owned for less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped” the house and any profits from the deal will be taxed as business income.
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THOUGHTS ON THIS:
Two reasons why this is not a good idea:
1. Buyers currently have opportunities to purchase homes that require a lot construction work to bring them up to a standard of living that they would like.
- Usually flippers won't pay top dollar for beat up houses. They typically want houses that need so much work that no one wants to buy it, but they have the vision, money and construction team to be able to beautify the home more inexpensively than most. More often than not, house flippers buy distressed homes and fix them up by doing their own work, making the renovation cost significantly lower than if a buyer were to have purchased the same house and hired professionals to do the same fixing and updates. Flippers are the ones taking on all of the risk to make homes at their worst (some unlivable) and improving them along with the neighbourhood.
2. Buyers currently have the option to NOT buy flipped houses if they are not worth it.
- If the value is there for a flipped house that is for sale, great! If no one feels like there is value in the house that was updated at the price that the flippers want for it, then it won't sell. The government doesn't decide the prices of housing, it's supply and demand. Plus, If the flippers have received permits from the city and all of the work has been approved as being well done, then that is bonus for the buyers.
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This unfortunately is not the way to fix Canada's housing crisis and seems like a tax grab. Not to mention that the number of homes on the market that have been flipped at any given time is very low.
“The ideal environment for fix-and-flip investors is a market with high demand, low inventory, rapidly rising prices, and affordable financing,” says Rick Sharga, ATTOM’s vice president of market intelligence. Currently demand is low, inventory is four times higher than last year in London, prices are decreasing and financing is much less affordable. (Article: Flippers profits are the lowest in 13 years)
More about the Anti-Flipping Rules scheduled for January 1st: Financial Post Article
