Commercial properties for BC home flipping tax
Last updated on December 2, 2024Under the BC home flipping tax, commercial property means a portion of residential property that is used primarily for a commercial purpose.
A commercial purpose does not include any of the following:
- Holding the residential property for sale
- Renovating the residential property for sale
- Providing accommodation, under a tenancy agreement or a short-term vacation rental agreement, in a housing unit that is part of the residential property
- A non-residential purpose carried out in a housing unit that is part of the residential property
Although renovating the residential property for sale is not considered a commercial purpose and is therefore not a commercial property, you may be exempt from the tax if you:
- Completed a substantial renovation
- Added a housing unit to your property, or
- Were a builder or developer
Note: A home office that is part of a housing unit does not qualify as commercial property.
Exemption for exclusive commercial use
You are exempt from paying the BC home flipping tax and filing a return if you used a residential property exclusively for a commercial purpose for the entire time that you held that property.
Example 1: Ann purchased a residential property on March 1, 2025 to open a law office. During the entire time that she owned the property, it was exclusively used for the commercial purpose of her legal practice. If Ann sells the property on January 1, 2027 to move to a larger office space, she is exempt from the BC home flipping tax because the residential property was used exclusively for a commercial purpose for the entire time that she owned it.
Example 2: On January 1, 2025, Matias purchased a house that was his primary residence and used one of the rooms as a home office. Although the room will be used for Matias’s business, it will not be considered commercial property because the business activity is carried out within the housing unit. If Matias sells the property on March 1, 2026, the sale will be subject to the BC home flipping tax.
Calculating the tax if residential property includes a commercial property
If you sell a residential property that includes commercial property less than 730 days after you purchased it, you are not required to pay the BC home flipping tax for the sale of the commercial property.
In calculating the taxable income from the proceeds of sale of the property, the cost to purchase the property, and the cost to improve the property, you are not required to include the proceeds of sale of the commercial property and are not allowed to exclude the costs to purchase and to improve the commercial property.
If an expense cannot be specifically traced to the commercial property, another method must be used to achieve a reasonable allocation of costs.
Proceeds from the sale of the property
When calculating your taxable income from the sale of a property that includes a commercial property, you will need to determine how much of the proceeds from the sale of the property can reasonably be attributed to the commercial property.
Any consideration received or receivable from the sale of a property that is not commercial property at the time it is sold is included in the proceeds of sale of the property, even if the property was commercial property at the time the property was purchased.
You do not need to include any proceeds that you received from the sale that can reasonably be attributed to the commercial property.
The attribution of the proceeds is based on fact and may include consideration of factors such as the proportion of the property that is commercial property.
Example: On June 1, 2025, Sheldon purchased a property for $2,000,000 consisting of one acre of land with a housing unit and a separate building with a mechanical shop, which he uses to operate his small engine repair business. The mechanical shop and a paved parking area for customers occupies half of an acre. The remaining half acre of land is occupied by the housing unit as well as a lawn and garden for personal use. If Sheldon decides to sell the property on July 15, 2026, receiving total proceeds of $2,200,000, Sheldon will be subject to the BC home flipping tax. Since half of the property is used primarily for a commercial purpose, it is considered a commercial property and Sheldon does not have to include the proceeds from the sale that can be attributed to the commercial property when calculating his taxable income. Assuming that each half of the property is equally valued, Sheldon would report total proceeds of $1,100,000 (50% of $2,200,000).
You also may not deduct the following costs if they are attributable to the sale of a commercial property:
- Legal costs
- Appraisal costs
- Costs for trading services as defined in the Real Estate Services Act
- Costs of a home inspection carried out by a home inspector licensed under the Business Practices and Consumer Protection Act
- Costs of a survey of any residential property comprising the taxable property
Example: On November 1, 2026, Jon sold a residential property that had a restaurant on the top floor. The residential property was purchased on January 1, 2025. The commercial property had a square footage that was the same as the remainder of the residential property. Since the residential property was sold less than 730 days after it was purchased, Jon is subject to the BC home flipping tax. If Jon incurred eligible costs of $60,000, he must determine the amount of these costs that are reasonably attributable to the commercial property, as he will be unable to deduct these costs. As the commercial property and the remainder of the residential property have the same square footage, it would be reasonable to attribute half of the selling costs ($30,000) to be eligible costs.
Cost to purchase the property
When calculating the cost to purchase the property that includes a commercial property, you will need to determine how much of the cost to purchase the property can reasonably be attributed to the commercial property. This determination is based on the use of the property at the time that it is sold.
Any consideration paid or payable to purchase a property that is commercial property at the time that it is sold cannot be included when calculating the cost to purchase the property, even if the property was not a commercial property when it was purchased.
You also may not include the following amounts paid or payable when calculating the cost to purchase the property if these amounts are attributable to the commercial property at the time of sale:
- Tax under section 2 (1) [general tax imposed] of the Property Transfer Tax Act, not including interest and penalties
- Legal costs
- Appraisal costs
- Fees for registration under the Land Title Act
- Costs of a home inspection carried out by a home inspector licensed under the Business Practices and Consumer Protection Act
- Costs of title insurance
- Costs of a survey of any residential property comprising the taxable property
- Tax under section 165 (1) of the Excise Tax Act (Canada)
- Costs to obtain documentation required by home insurance providers
Example: On August 1, 2025, Mei purchased a residential property consisting of a housing unit and a separate building that she used exclusively as a fitness studio for her personal training business. At the time of purchase, Mei paid $50,000 in eligible taxes and fees. She also paid $600 to a licensed home inspector to have the housing unit inspected and $200 for an inspection of the studio. The studio takes up approximately one quarter of the entire property and the remainder of the property is used for residential purposes. If Mei sells the property on January 1, 2027, she will be subject to the BC home flipping tax and she must determine the costs which are attributable to the purchase of the commercial property, as these costs cannot be deducted in calculating taxable income. Since the studio takes up one quarter of the property, it would be reasonable to allocate $12,500 of the costs to the studio, in addition to the $200 cost of the inspection.
Cost to improve the property
You may not deduct costs to improve the commercial property when calculating your taxable income.
- Example: On February 1, 2026, Shelly purchased a property consisting of a retail store with an apartment unit above and spent $20,000 to complete improvements of an enduring nature to the store. If she sells the property on May 15, 2027, Shelly will not have to pay the BC home flipping tax on the commercial property and will not be able to deduct the costs to renovate the store from her taxable income because the store is considered to be commercial property.