Real estate flips in the crosshairs of Quebec
Quebec Minister of Finance, Eric Girard.
The rapid resale of real estate will become more difficult. Quebec Finance Minister Éric Girard has announced that people who engage in real estate flips will have their profits taxed at 100% rather than 50%.
What is commonly called a flip refers to the purchase of a residential property with the aim of reselling it quickly to pocket a profit. These rushed sales contribute to the explosion of real estate prices in Quebec. The provincial government is therefore tackling the flips with a new tax rule, which sticks to the federal measures announced in April.
Effective January 1, 2023, at the same time as the rule federally, profits from a resale within 12 months of acquisition will be taxable as a business profit rather than a capital gain. The entire profit will therefore be subject to tax rather than just 50%.
The measure is part of a series of tax changes announced Thursday by the Minister of Finance.
“The changes we are announcing today affect many aspects of the Québec tax system and they meet the needs of citizens and businesses. I am particularly pleased with the measures that will promote access to home ownership and those that will help hire and retain experienced workers and people with severe employment limitations,” said Mr. Girard in a press release.
A new rule of presumption
On April 7, 2022, the federal government announced that profits from hasty resales would be 100% taxable as business income. What is the difference with the current tax? Currently, this income can be declared as capital gains, so only 50% is taxable. Sometimes a homeowner can claim the principal residence exemption and pay no tax on the resale profit. It is to prevent abuse that the federal government is introducing this new rule of presumption, which fully taxes earnings. Note that exceptions are provided for several situations, such as a separation or a death.
Mixed reactions
The Corporation of Property Owners of Quebec (CORPIQ), a non-profit organization that represents owners of rental properties, recognizes that the intention of governments is good.
“We advocate the long term because that we think that the health of the rental market depends on long-term ownership,” said Benoit Ste-Marie, General Manager, in an interview with Métro. “We welcome the measures that affect real estate flips on all categories of properties, whether chalets or condos. We agree with a taxation of gains, which takes into account the expenses incurred by the owners, the money invested in the property.”
For Ruba Ghazal, spokesperson for Québec solidaire in of Finance, the government is not going far enough.
“These scoops are not going to help families buy a first property in the midst of real estate overheating. It's gonna take more than a real estate flip tax to curb speculation. A united government will introduce a real anti-speculation tax and will propose measures to help families realize their dream of buying a first property.”
The majority of political actors agree on a point: the need to tackle the meteoric rise in property prices. In Montreal, Mayor Plante has already pledged to request the power to modulate the transfer tax (or “welcome tax”), in order to discourage the phenomenon.
