Capital gains tax adjustment unnerves CRE
New inclusion rate comes with immediate and longer-term implications
Looming changes to Canada’s capital gains tax will have the most immediate implications for private real estate investors who were in the process of divesting properties when the federal government announced its intentions in the 2024 budget, released on April 16. In the longer term, it’s expected that the jump from a 50 to 66 per cent inclusion rate, which takes effect on June 25, will be factored into a range of asset management and investment decisions.
Regardless, some of the most prominent players in the Canadian commercial real estate market won’t incur direct fallout since pension funds are exempt from capital gains tax. Nor is the tax applicable on deals that render a loss on the seller’s acquisition costs so many insolvency-triggered offerings in the marketplace won’t be affected.
For corporate property owners, the new capital gains inclusion rate means that 66 per cent of the realized profits from a sale — i.e. the gain above original acquisition costs — will be added to their taxable income for the year. A more moderate two-step formula will be applied to non-incorporated individuals who sell investment properties,. They will be taxed on 50 per cent of capital gains up to $250,000 and then on 66 per cent of the remainder of their profits.
“If you’re a private investor subject to the capital gains tax, based on our initial quick calculation, the new inclusion rate probably adds anywhere between 8 and 12 per cent to your cost, depending on your tax bracket,” Mark Sinnett, executive vice president of capital markets with Avison Young, told webinar attendees last week. …[Continue Reading]