As the increase in the capital gains inclusion rate progresses, Canadians with family cabins face a larger tax bill when they pass them on to family or sell them for retirement.
Real estate experts say it’s not just the rich who are caught in the crossfire.
“I know the federal government has openly expressed that this is only aimed at the richest of the rich; It’s just not practical, it’s just not true,” says Christopher Alexander, president of Re/Max Canada.
“I think it will penalize more average Canadians than was intended.”
The House of Commons voted Tuesday to approve changes to the Liberal government’s capital gains tax. Conservatives opposed the measure.
Capital gains are the proceeds from the sale of an asset such as a stock or investment property. Currently, all capital gains have a 50 percent inclusion rate, meaning that half of the gains made from the sale are added to that year’s taxable income.
Under the Liberals’ proposed changes, that inclusion rate would increase to 67 percent on any earnings earned above $250,000 annually for individuals.
They say this measure targets the wealthy and will invest in healthcare, housing and clean technology and improve “tax fairness” in Canada, but not everyone agrees, saying it is further penalizing those in the middle class and the people looking to retire. .
Bob Clarke, owner of Clarke Muskoka Realty and Construction, says since it was announced they have been incredibly busy with people trying to finalize the sale of their cabins before the change goes into effect at the end of this month.
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“We’re running out of time. In fact, we’ve sold I don’t know how many properties now, under this legislation, and people aren’t saying, ‘Let’s close it on June 25.’ They say, ‘Let’s close on the 20th or the 21st’ because of potential setbacks and problems we have with real estate closings,” Clarke says.
He says lawyers working to close deals are also feeling the crunch, noting that at least two of them he works with can’t take on any clients before the change.
“What it has done is push people to make a decision and put their cabins and secondary homes on the market because they will be affected by the capital gain,” he says.
Clarke and Alexander say people should have been given more time to get their plans in order or cancel them altogether.
“The perception is that everyone here is rich, but you have to understand that there are people whose parents have bought these properties and the children are teachers or have high-paying jobs, like firefighters, things like that,” Clarke says. “But property values increased between 2019 and the COVID peak by 50 to 60 percent and our correction has been in the 10 percent range.”
What this means for family cottages is that when the owner of the house dies or passes it down to the family, a large amount of the increase in value is subject to capital gains tax before the property can be passed on, which can mean a considerable increase for houses. passed down from generation to generation.
“People who were planning to sell this year after June 25 as part of their retirement or wealth-building strategy, those are the people who are going to suffer first,” Alexander says. “I think the vast majority of people who own investment properties are ordinary Canadians who save enough to buy a second property that they use to generate income for their retirement or for their children’s education. In my opinion, those are the people who this is really going to hurt the most.”
According to a recent Leger survey commissioned by Re/Max, 13 per cent of Canadians own a recreational home. This includes six per cent who bought before 2020, three per cent who bought after 2020 and three per cent who inherited a country house.
The survey found that 28 per cent of Canadian cottage owners had already sold one of their properties amid the high cost of living and rising interest rates.
Alexander says that while he hasn’t seen a rush of cottages on the market, he has seen succession planning accelerate for many families, noting how the change affects their passing of ownership to the next generation.
But before making any decisions, Alexander recommends consulting an expert first.
“If you are thinking about selling your house or cabin as a result of this, there are new tax measures, speak to a good real estate lawyer, a good accountant and obviously a professional real estate agent because they can guide you through the process. .”
– with files from Craig Lord and Uday Rana of Global News
© 2024 Global News, a division of Corus Entertainment Inc.
