Tax change hasn't impact investment property sales – yet
The Canadian Real Estate Association (CREA) has reported that there has not been a significant increase in sales of secondary residences despite the implementation of new capital gains tax rules.
This comes as changes to the capital gains inclusion rate take effect today, raising concerns among real estate experts and property owners.
As of April 25, the inclusion rate for capital gains has increased from 50% to 66% on gains above $250,000 per year for individuals, and on all capital gains realized by corporations and trusts. This change applies to various assets, including cottages, investment properties, stocks, and mutual funds, but excludes primary residences.
Asset holders had over two months to sell before the capital gains tax hike came into effect.
"We haven't noticed anything notable on the sales side at this time," said CREA spokesperson Pierre Leduc, adding that while there was an increase in multi-family property listings after the budget announcement, "we suspect a number of them will be taken off the market after (Monday)."
Mark Pedlar noted that while his clients are concerned about the change, other market factors are having a more significant impact on sales.
"There was an increase in listing this year, but the capital gains increase was less of a factor, I think, for people selling than it may be hyped up to be," Pedlar told CBC News. “The interest rates, mortgage renewals, short-term rental regulations and market trends have been more of a factor for the increased inventory."
Finance Minister Chrystia Freeland defended the changes, stating that only the wealthiest 0.13% of Canadians will be affected. She said the new rules will raise $19 billion for federal social and housing programs.
"The fair way to finance them is with tax fairness. That's what we're doing," Freeland said.
However, some economists dispute these figures. Jack Mintz from the University of Calgary projected that closer to 1.25 million Canadians will be affected, significantly more than the government's estimate of 40,000.
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The changes have also impacted corporate deals, with lawyer Audrey DeMarsico noting a "rush to close transactions" before the deadline.
Benjamin Bergen, president of the Council of Canadian Innovators, reported receiving 1,800 inquiries about the changes and hearing anecdotes of businesses relocating to avoid the increase.
Industry groups, including those representing farmers and the tech sector, have expressed concerns that the changes will discourage investment. Conservative Leader Pierre Poilievre has labelled the change as "job-killing."
The federal government said that the changes won't harm Canada's business competitiveness, pointing out that corporations in most other countries, including the United States, pay corporate income tax on their capital gains.
A recent International Monetary Fund report supported this, stating that the increase "is likely to have no significant impact on investment or productivity growth."
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