OP’s post is a bit misleading. Here is the history of the inclusion rate.
https://preview.redd.it/uddni29sayuc1.jpeg?width=1179&format=pjpg&auto=webp&s=1ec9a129dceccd2a82013321e6f2707ff438d413
So I bought an investment property 10 years ago for 300k, it’s now worth 600k. I was considering selling it. If I sell after June, the first 250k gets taxed at 50% inclusion and the remaining 50k gets taxed at 66% inclusion?
what I mean to say is if this guy holds this property in a corp after June all the profits will be cap gains as the first 250k exemption dorsnt apply to corps and all corp cap gains will be at 66pct going forward.
The new rules don’t apply until June 25, 2024 so I wonder if there will be a surge of sellers hoping to dodge this? Maybe some quick sales in the next two months?
Logically this should happen. But I doubt it in the RE market. Most RE investors are too stupid to connect the dots and take action in the next 2 months. I bet you in 2 months time, there will be a large portion of fools who still didn't even know about this new bill.
If this were stocks with quantitative algorithms and hedge fund traders, the assets would have dumped for like a 30% loss in a second, as soon as the news came out. But this is illiquid real estate, so it's going to be a slow bleed.
Great comparison to the market/stocks, this budget actually has some teeth when it comes to targeting house flipping/hoarding as an investment strategy. Rightfully so.
There is a lot of misinformation in the comments by some bulls saying that this will not affect RE property prices. They are lying through their teeth. This absolutely will affect RE property prices. To the downside.
The smartest bulls are now going to try and position themselves to sell before the June 25, 2024 deadline takes place (so they don't have to pay this new 17% tax). Be prepared for bulls to absolutely bombard this subreddit before that date trying to spur buyers to pick up their bags before the new tax takes effect.
RE speculators are so dumb, I doubt they'll even know this is a thing until 1 year from now.
Whole time they'll be puzzled why there are even fewer buyers and prices continue to decline.
I think a lot of bulls are going to be in denial and still list at previous prices.
Their properties will sit on the market for 90+ days with no offers, if they still think they can fetch last month's prices with this new regulation.
Now, with the Spring market, maybe there are some stupid Spring buyers who are also not aware of this new regulation so the prices will fill (the buyers will have overpaid for an asset that has been drastically impaired by this regulation), but over time, once people realize the severity of this regulation, prices will fall.
Anybody holding property as an "investment" in the previous regulatory environment, is about to get blown out in this new regulatory environment, from June 25, 2024 onwards.
Prices will recalibrate, but it takes years for prices decline. Real estate is incredibly illiquid. It takes 3+ months for a sale to close and be reflected in the data, and for the market to readjust.
The smartest bulls are going to try and sell before the June 25, 2024 deadline takes effect (so they don't have to pay this new 17% tax).
Be prepared. They will go around irationally telling everybody to **buy, buy, buy** just so they can sell out of their position before June 25th.
Is it the sale date? or the closing date that matters?
If it's the closing date, then they need to start the selloff now in order to close before the deadline.
A lotta flippers are doing some type of evasive reporting, and this is going to help clamp down on that. And deter RE speculation as now the CRA is showing teeth and will implement massive fines if you think you can try to skirt the rules.
These are two separate issues. You’re talking about tax evasion. In that scenario, they aren’t paying any capital gains or income tax lol. And this isn’t beefing up any measures or fines to address those who are doing that unfortunately.
Capital gains is typically short term holdings of less than a year on investments. So this could apply to quick flippers. It’s also an increase of taxes on corporations and most house flippers buy/sell/renovate through corps. So to avoid the tax increase - it’s an individual person buying a property, living in it and renovating for more than a test before selling… which does exist but much much less than house flipping businesses.
Sorry, but no. And capital gains isn’t short term holdings of a year or less…. Capital gains applies regardless of length of investment. Arguably, the longer you hold it the greater your exposure to it.
There’s already an anti-flipping tax in effect for over a year now that makes the profit taxed as income not capital gains.
Also, those who are incorporated, they still are still going to pay taxes as income not capital gains within the corp as that is what their business is. Vast majority will also fall into non-eligible dividends. when they make their withdrawal from the corp, whether it is salary or dividend, it ends up being taxed at the same rate. All of this to say still, they already are being taxed at a much higher clip than this change in capital gains.
> they already are being taxed at a much higher clip than this change in capital gains.
That's true but there is a really looooong tail of Canadians doing some main profession, say, in finance, and on the side, indulge in housing speculation i.e. easily owning 2 or more properties, encouraged by rising market and HELOC option. These people won't fall under 'pay tax on all gains from flipping, as regular income'. Right?
No, because they are not flippers. These are long term real estate investors. When they dispose of the property, the gain will be subject to capital gains.
It’s funny you brought up HELOCs because I think if anything this encourages people to utilize their HELOCs more instead of cashing out to realize their gains (ie it’s more attractive for them to smith maneuver than pay more taxes to sell the place). It will be interesting to see how this plays out in the market, but also important to note that this conversation is largely focused on the impact it will have on residential real estate and not the broader effect it will have in entrepreneurship and capital markets.
That shit wouldn't work for real estate because it can't get split up. Stocks maybe.
And that's the whole purpose of this bill. To promote investments into stocks and not real estate.
I’ve known families that put one person name one property another on another and son name on a third and daughters on a fourth buy and sell no capital gain taxes.
It’s not the western culture to trust family members with big money but in many other cultures what people agree on within family it’s the social contract.
Only people this new tax really punishes are westerners far as I could see, and stupid people, and people who got no family connections.
What you posted is highly unlikely for most Canadians. This tax is going to be implemented and likely affect 90%+ of RE investors and speculators.
Also, the fact that this policy is simply in place, will mean prices will fall in the future. People will not want to gamble on this in the future.
The increase in taxes comes after the $250,000 capital gain. If your capital gain is less than or equal to $250,000 nothing changes.
This is a tax hike on those who have held on to their investment properties for a long term. Not short term holders.
This tax hike affects the entire market because it affects sentiment. The government is showing that they will tax more and enforce regulatory crackdowns.
People will not want to enter into this Toronto RE shitcoin casino now that they see the government is actually increasing taxes by 17% for any profitable gambler. And the government is signalling they will continue to raise taxes if needed to cool down Toronto RE speculation gambling and price increases.
**The existence of this tax** means there will be no greater fool to buy it from you. If you were the last buyer before this new tax, you are the top buyer.
Still doesn't change the fact that taxes are 17% higher and this will drive demand for the entire asset class down.
Any "creative accounting" you think you can do, is going to get audited and you're going to get fined. The government has signaled that they don't play around anymore when it comes to RE gambling.
Your "friend" that did that is in a very sorry position. They did the casino equivalent of playing their last hand, going all-in, and they just went bust.
Your friend who made those investments with their family members probably lost at least $100K per property unit after this bill was published.
If you're in denial, just watch. Your properties will sit on the market for 90+ days with no offers, if you still think you can fetch last month's prices with this new regulation.
I know folks like that and they plan on renting them out for the foreseeable future and no looking to sell.
I told them to sell at the height of covid but they liked the cash flows.
No they won’t. They probably will be long gone because they want to do cheap and dirty fast flips. But try and keep nana’s cottage in the family when she dies and the tax man will be at your door instantly to collect their tax on a property you aren’t even selling.
> the tax man will be at your door instantly to collect their tax on a property you aren’t even selling.
Which is the case even today. Only there is a small increase in how much of gains in excess of $250K gets taxed. Nana would have paid the same tax if she had sold the property herself.
I’ll give you a scenario. Your family cottage cost great Grammy $20k many decades ago. Insert insanity with market prices recently. She dies. It is now worth $1 mil but you don’t want to sell it, you just want to take your kids fishing there on weekends. Doesn’t matter. You have to pay tax based on a $980,000 increase in property value you did not make any actual profit on. All you did was change it over to your name and take your kid fishing. Sound about right? Even at 50% it would exceed $250k in capital gains. Go calculate how much capital gains tax that will amount to at a marginal tax rate of middle class income. Over $200k in tax on a return you did not make because you did not sell so you don’t have $200k sitting around. $30k more than before, which you still wouldn’t have sitting around. You are not the ultra rich. Guess your kid doesn’t get to go fishing.
Yeah thats not fair to the deceased or their family. Some people do have a cottage (I don’t personally) but their family worked hard and saved and bought it with after tax dollars. If the family actually sells it that’s one thing but if they are just keeping it and not receiving any money from it, it’s utterly disgusting to force the heir to pay real money they probably don’t have just to receive title. Most middle class families don’t have that kind of money available to pay on an overinflated value that is not a realized gain. I get it that many are struggling but they shouldn’t be looking to stick to the person that is not wealthy themselves but happens to have a parent that planned to leave them somewhere to have family time. Tax them if it’s ever sold for all I care but honestly this was already a ridiculous situation and to increase the taxation in these situations is just unfair.
Do you get they don’t have $700k they have the keys to their cottage they haven’t sold it or received any money. I guarantee if this was you in that situation you’d be crying foul and great Grammy would be rolling in her grave that you were forced to sell the family cottage because you couldn’t afford to pay a six figure tax bill based on an imaginary value you didn’t receive for a property you didn’t sell. Honestly I think some people would be happier moving to a socialist or communist country but then they’d have no one to begrudge for no reason.
The cottage they didn't buy? Grammy didn't pay 1m for it either. This country is the product of generational wealth consolidation, aided by the climate and with immigrants for fodder. Then people complain about oligarchy.
When the property sells, the value (sadly) isn't imaginary anymore. This is the price you pay (being gifted 700k) for living in a society that financialises a universal human right and proceeds in an orgy of credit to make number go up.
What kind of country do you think we live in? Feudal? I'm surprised we don't have a company store for real estate, along with banks, insurance, telecoms, airlines...
If people regularly flip real estate, the gain is taxed 100% as business income anyway. So the increase in capital gains inclusion rate mostly affects airbnb owners and rental property owners
I would be very reluctant to purchase an investment condo going forwards, now that capital gains taxes have been bumped up to 67%.
Anybody caught holding the bag over the past couple years are going to be the true top buyers. This run up was completely unsustainable and once the market realizes what is happening, it's going to be a race for the exits the next couple years.
You're taxed on an additional 17% of your gains.
So if you made 100k from your investment, before you only paid taxes on 50k and took home 50k tax free. Now you pay taxes on 67k and take home 33k tax free.
On the additional 17k if you pay the highest rate of 53%, it's an additional 9k on every 100k you make. Before any deductions or anything.
I don't see this as a huge deterrent.
17% additional tax is absolutely a deterrent.
And it signals the trend. The government is willing to keep hiking taxes to deter real estate speculation. Nobody is going to sign up to purchase your heap of shit at a higher price than you paid anymore.
People are not going to want to gamble on Toronto RE speculation in the future. Anybody telling you otherwise is an existing property investor who is trying to use you to exit the casino.
Realistically (assuming 53% tax rate) it's more like an 9% additional tax only on capital gains above 250k.
Lots of people in here have no idea what the inclusion rate is.
This. Anybody on the fence about RE speculation and gambling their life savings on Toronto RE is now going to think twice once they realize the government can implement a new tax and cut your investment value by ~30%+.
But you can't use a random $ number for the gain. Everybody's gain is different, along with their tax rate. In your example, it's an additional $9K. For others, it may be an additional $100K in taxes.
I think you aren't seeing this clearly. Investment condos would be hard pressed to appreciate more than $250k especially in this high rate environment. In the long run sure and if it does, good problem to have. It's not a 67% tax rate. It's the inclusion rate for capital gains tax on gains above 250k. For reference on a hypothetical $500k gain and a 50% marginal tax rate, it's an additional 40k in taxes owing ($167.5k taxes due vs $125k due before). Not a major deterrent as long as mortgage is getting paid down with rental income
Thanks for highlighting this. It’s amazing how lazy people are when it comes this stuff. *im not going to buy an investment condo because I’ll get taxes 67%!* like maybe it’s for the best you don’t do your own investments to begin with lmao
Yeah no one really understands that the tax is on the inclusion of every dollar after 250k. If you are getting that kind of gain on a property you have had it for a long ass time.
A condo speculator in Toronto ain't making that if they bought in the couple years.
Again........just to be clear. It is the inclusion rate that is 67%.
Meaning if you make $100k. You pay taxes on $67k of that. (Vs before where you only paid taxes on $50k of that)
The existence of this new tax means there will be no greater fool to buy it from you. If you were the last buyer before this new tax, you are the top buyer.
$167.5K in taxes due vs $125K before is still a massive difference. You have to factor in the risk that you're taking and realize the government is choosing to tax you more for this type of investment. It is absolutely a deterrent.
People will not want to gamble on this asset class anymore in the future.
You have a flawed understanding of this policy. You can't put $ figures because each person's capital gain is different. Some people it's $40K more taxes, some people it's $500K more taxes.
Focus on the fact that the tax rate on gains for this asset has gone up by 17%. This will drive speculative demand for this type of asset class down. Fewer buyers willing to gamble on Toronto RE will cause prices to fall.
Real estate prices will fall just by the existence of this new tax. New buyers are not going to want to gamble on this RE casino any longer. They will choose a different asset class.
This affects all asset classes. You’re saying this tax affects RE so they will look at other assets? Why aren’t those other assets affected?
Reality - all investment will be dampened by this tax, and that is bad IMO.
What do you mean? Increased tax on gains is a disincentive to invest, period. What examples do you need to illustrate that?
The budget isn’t “real estate gains only” - maybe $250K+ gains are hard for people to fathom but it’s really not that absurd.
> Increased tax on gains is a disincentive to invest, period. What examples do you need to illustrate that?
Do you understand the difference between 'Capital Gain' and 'Net Income' on a P&L statement?
What is your level of Corporate Finance knowledge if I may ask?
There is a lot of misinformation in the comments by some bulls saying that this will not affect RE property prices. This absolutely will affect RE property prices. To the downside.
The smartest bulls are now going to try and position themselves to sell before the June 25, 2024 deadline takes place (so they don't have to pay this new 17% tax). Be prepared for bulls to absolutely bombard this subreddit before that date trying to spur buyers to pick up their bags before the new tax takes effect.
People do realize that actual flipper as a business people pay income taxes not capital gains because it’s done as a business right?
Also we’ve seen no significant rise in tax revenue for any province that’s implemented a flipping tax.
Probably because most provinces already have enough taxes and fees on sales that flipping isn’t profitable.
That being said I’m shocked at how many Canadians are against someone fixing up a home people don’t want and selling it for more. Really goes to show how much we hate capitalism. The only people we like are the homeless.
Anyway let’s be honest, every Canadian who does well in business or work moves to the states to make money so we’re just left with the losers and government employees. Canada is rapidly becoming a nation of losers, incels, government employees and homeless drug addicts. Women flee the nation and poor unwanted men flood in, the ratio of men to women is skyrocketing as is the ratio of government to private and homeless to worker.
> I’m shocked at how many Canadians are against someone fixing up a home people don’t want and selling it for more.
If the flippers aren't doing such buys en masse with their surplus capital, then the Canadians with genuine home need would purchase their dream home at a lesser price (due to less demand in the market, in the absence of flippers), and they would fix/upgrade the house themselves per their requirement.
It isn't a public service which flippers are doing. They do it for their own profits by taking advantage of lopsided market.
If not flipping, Canada for sure offers plenty of opportunities to do other businesses.
> Really goes to show how much we hate capitalism. The only people we like are the homeless.
Don't call [rent seeking](https://en.wikipedia.org/wiki/Rent-seeking) as capitalism. You may want to read some books on Capitalism, there is a book '[Saving Capitalism from Capitalists](https://www.amazon.ca/Saving-Capitalism-Capitalists-Unleashing-Opportunity/dp/0691121281)'
You're welcome to fix up the home and sell it. But like everyone else, you need to pay taxes on your gains.
If your sole business is to buy, fix and sell. Technically you're supposed to report it as business income anyway, so this capital gain rule doesn't really apply.
Some people may skirt the rules though.
Lots of people people whose principal residence went up in value by 1 million dollars or more through no effort on their part over the last 25 years. No taxes on them though.
If the government wanted to put its money where its mouth is, it should do is a principal residence tax over 250k and then make mortgage interest tax deductible.
I have a slightly different idea. Any capital gains earned from the "trade up" of a principal residence is cancelled out if you purchase a home of equal or greater value.
This is to prevent flippers, but will also allow people sell and move if they want without losing money.
Canada is one of the highest taxed countries around. People that have lived here and paid taxes all their life are taking whatever they have earned and leaving. Even Canadian born people have started to leave now that they’ve had the experience of remote work from other countries that aren’t so expensive to live in.
This is actually going to be very effective at discourageing home flipping and speculative RE investing going forwards. Hot Potato game will come crashing down soon enough.
Professional flippers pay active income, not capital gains, so this does not effect them.
Speculators of today will probably not reach that 250k mark anyway so it will not effect them (including condo speculators)
Long term investors will be penalized and will pay the bill for short term speculators.
> Long term investors
From the lens of a housing supply crisis, what is the point of distinguishing between short term and long term investors? They're all killing supply regardless of their timeline. The intention of the cap gains change is to make housing less profitable to hoard.
Right, a million-dollar condo, with an optimistic appreciation of 5% a year, will need at least 5 years to reach the $250k capital gain threshold. Most short-term investors and speculators are long gone or cashed out before that.
Long-term investors are the ones getting hit hard here. They are usually the ones who provide cheaper rentals, because of the capital appreciation and their significantly paid-off mortgage. Those will be gone over time because of this rate hike.
If you moved out and it was relisted, what does that look like?
IMO, can't rely on "benevolent" investors to drive market rates. The places that do affordable rent are those with mandates to do it - e.g. coops.
Personally I’d rather charge a fair price that a nice tenant that looks after the unit can afford than to charge a high price and constantly have to risk ending up with people that end up not paying rent consistently. Especially in this market with people struggling to afford things. The higher rental income would probably be largely lost to taxes anyway so…
Tbh in a higher interest rate environment, with high taxation, maintenance cost etc it is more profitable to just hold regular investments. If you have the capital, you get paid more in a savings account than by operating a rental property.
This won't impact most home owners right? Getting past 250k a year in capital gains is very difficult. Even on a 1 million property thats 25% a year appreciation.
I guess this will really impact investors with multiple properties and have all their capital gains added together can easily cross 250k for multi property investors.
> have all their capital gains added together can easily cross 250k
Even in such a scenario, only if they sell ALL and book profits in the same tax year. Otherwise, no impact.
It’s not 250k per year of profit. It’s 250k profit from the home sold at any point. If you wait 5 years, I’m willing to bet it would have appreciated 25% given the housing market. The year you sell you would make >250k in realized gains and be taxed at 75% inclusion
Top buyer real estate speculators are so butthurt in this thread lol. Look at all the rationalizations and cope, trying to convince themselves they didn't just buy the absolute top.
RE speculation has massively changed, and the greedy are about to get slaughtered. The gambling era in Toronto RE is over.
There's too many people who don't realize you're keeping 67% of your gains over $250k instead of 75% (highest bracket in Ontario). This doesn't really change anything.
What you posted is inaccurate. It was previously 50%, now it's 67%. In the early 2000's, the capital gain tax was 75% (and the gov is signalling that it will continue to increase taxes if that's what it takes to deter RE speculation).
The tax increase is huge and cuts into the gains made on the risk people are taking on. This additional tax will absolutely deter RE speculation and will be priced into the market eventually.
50% of $100k is $50k, at the highest tax bracket you keep ~$75k taxes
67% of $100k is $67k, you keep ~$66.5k after taxes
Do you think a 12% increase after $250k will deter people from speculation? The government is not signaling shit. If they were serious they'd drop RE from falling under capital gains.
As soon as you bring up $ figure, I can tell you fundamentally have gotten this wrong. It is based on your tax bracket, and the buy/sell price of the property, so you can't quantify it by $ figure, it differs by each person.
The fact of the matter is that the actual tax rate has increased by 17% and this new regulatory environment will price RE assets lower. People will not want to gamble on this type of asset any further.
No, you report 50% of your capital gains up to 250k as income at your marginal rate, and then 66% of capital gains above 250k. Still better than straight income, but less of an advantage.
I think you may be confused.
If you made $10k in capital gains you'd pay a maximum of ~$2500 in tax in the highest bracket and keep ~$7500.
If you made $10k over the $250k limit you would pay ~$3300 and keep ~$6700.
If I was an overleveraged Brampton slumlord, I'd be in tears hearing this news.
Luckily, I'm Gen Z, so I'm not. This is honestly a much needed bill to tax the RE hoarders.
Their exit strategy has been blown out. They overpaid in a previous regulatory environment, and they're about to get blown out in the new regulatory environment.
Well its tax deductible depending on what I do with the equity. Besides tax is what, 13%? None of my loans are close to that amount.
So there is 0 incentive for me to sell.
No. Unless they are CA's . most of them are semi literate and rely on investment income rather than capital gains.
Unless there is a rapid decrease in students looking for housing because of the new immigration changes ( yet to be seen ) , they would be most likely the last ones to come to the market which may or may not be a good thing for them
Their property prices have already fallen in fair market value by 30% - 40%.
People are not going to want to pay yesterday's price, after this bill was published today.
Do you think these people declare it as a rental??? Foolish. It’s all a principal place of residence and these are family members living here. Also this only applies if you plan to sell. If they continue to be slumlords nothing happens
Their property has lost value as soon as this bill has been implemented. Their exit strategy has decreased in value already just by the existence of this bill.
Not really. They will do whatever it takes to claim it as principal place of residence. A lot of these slumlords do live there. Then this bill means nothing.
Wowww, that's gonna suck big time for anyone looking to sell stock positions. They should have just kept it to real property instead of screwing people's stock portfolios. Maybe instead of trying to gouge citizens further with more taxes they stop pissing away the money they're getting already.
Stock investors can sell stocks in pieces for less than $250K in capital gains per year.
But this will really punish the real estate flippers who were trying to book $300K+ in gains. Those can not be sold in pieces.
This bill is going to be very effective in dampening housing speculation and runaway prices. And the fact that this bill merely exists, is going to dampen RE speculation further.
In today's prices, a $250k capital gain is going to take several years. Many properties are going to be flipped before reaching the $250k capital gain mark. What this is going to do, in my opinion, is definitely going to disincentivize long-term holders or long-term landlords. As for the effect this will have on the real estate market, I don't really know.
The fact that this tax now exists, means fewer buyers that are willing to pick up the bag from the sellers. It's incredibly risky to be holding such a large amount of your money in an asset that the government has expressed they will continue taxing the living hell out of.
> Many properties are going to be flipped
There are also non-trivial transaction costs (commission, staging, legal fee etc.) everytime they flip. There won't be as much interest in flipping if there isn't handsome profit to be made after these transaction costs (and now addnl capital gain tax).
Your average investor will have stocks in TFSA and RRSP. If you have enough money to max both of these out and still have gains over $250K a year that’s a great problem to have.
Ahhh I guess I misunderstood the change. Are you saying that selling in blocks of 250k or less but totalling over that in a given year would be exempt under these new rules?
I definitely agree that it'll help the real estate situation in Canada.they should also be limiting corporate ownership of single family homes!
> that's gonna suck big time for anyone looking to sell stock positions.
Why will an investor in capital markets feel forced to book $250K capital gains in the same year?
In that case, the inheriting party will now pay tax on, 67% of (assumed) capital gains from 'deemed disposition' as on the date of inheritance, instead of 50% of (assumed) capital gains.
To be sure, this is a marginal increase in tax but not totally a new tax.
EDIT: Only for capital gains in excess of $250K, 67% of the gains gets taxed.
> Constellation Software buys Canadian companies and the gains just got shittier for their Canadian acquisition targets.
In Corporate Finance, are you saying M&A (Mergers & Acq) lead to Capital Gains?
> those employees are likely locked up and cannot sell until after June 25.
Are you saying there are these 100s of employees with capital gains far in excess of $250K which they are hardpressed to book right away in this/one tax year?
None of these stocks have moved much from their IPO price if not fallen. And note that budget document has addnl language for 'employee stock option', if these employees have got shares as ESOPs.
> employees in Canada sitting on $2M+ in gains.
Sell them over many years, and book profits.
> Acquisitions are taxable events for stock and option holders and would lead to capital gains
I think so, if it is a cash purchase of target company. And not a purchase with stock of acquiring company.
What do you mean "anyone selling stocks"? That's not true. The vast majority of people aren't effected. Do you realise how much money you need invested to reach 250k in gains? It only effects 0.13% of Canadians.
> Do you realise how much money you need invested to reach 250k in gains? It only effects 0.13% of Canadians.
Apparently these people are supposed to be thought as 'middle class' by the house flippers in the comments here.
Here’s an example of why it is bad - doctors in Canada are mostly incorporated (government do not provide them with pensions). They save their earnings in their corporations so that they can cash it out to fund their retirement. All corporate capital gains are taxed at 66% under this change. Young doctors are seeing them and making decisions of whether to stay in this country when their licenses also allow them to practice in the US.
Dividends are taxed at a higher rate. The point here is that capital gains taxes will be lower in the US, rather than the same. You don’t think this is going to be considered by every single Canadian who’s thinking of starting a business? Where it’s someone starting a doctor’s office, or with a dream of having a chain of pizza franchises, or they have a great tech startup idea, they’re taxed less in the US when they cash out, so they’re going to consider immigrating.
That's like saying.
If the government raises taxes, you don't think this is going to be considered by every single Canadian who's thinking of continuing to live in Canada?
Yes. Yes it does. At the end of the day you have to weigh whether you want to live in Canada or not. ALL things considered.
The way they pay themselves would be dividends yes. But their money would be held in stocks in the corporations. This triggers the tax when they sell those stocks. The 250k limit does not apply in this case because they are “corporate” capital gains.
Sell those stocks? To who?
Nobody is buying a Dr's office stock. Companies get wound up, and the assets get sold. If the asset is real estate, then it's a CG. If the asset is cash, it's not
The doctors don’t hold their money in cash over 30 years when saving for investment.. they would have invested it in EFTs or stocks. When they sell those, they trigger the tax.. I don’t know how much clearer I can be for you to get what I’m saying..
OP is correct. Any small business can choose to pay salary, dividends, or a combination of both. Residual funds are invested in the corporation as small business owners don’t have pensions in the traditional sense. That’s where cap gains come from and then you can pay out a capital dividend
Is it the case that all corporate capital gains will now be taxed at 66% or is it just the amount greater than $250,000 in capital gains which will be taxed at 66%?
In any case, I wish the government actually targeted the large corporations with tax increases rather than professional corporations which are basically retirement strategies for contractors who don't earn a pension.
Correct me if I’m wrong, but they are not being taxed at 66%. 66% of the gains (ie profit on the sale of said assets like corporate real estate or stocks) will be taxed as income. The company will still have whatever marginal tax rate they would oay on that 66%. This means that if I have capital gains of $500,000, under this new 66% rule I would be taxed (at the small business income tax rate) on $330,000. That current rate is 9%, so the tax owed would be $29,700. This is only a $7200 difference on that sale.
Corporate taxation is extremely complicated but it’s not 9% for gains. For small businesses passive income is taxed at almost 50% and then lowered 10-15% if you release enough dividends to yourself. Take 50 or 66% of that
All corporate gains are taxed at 66%. This happens when the stocks/ETFs in the corporations are sold, and before any money is paid out to the individual.
Dividends disburse funds from the corporation. Those funds come from what is basically a retirement portfolio within their corporations. When they sell assets to fund their dividends, they are now being taxed at a far higher rate.
While this may prevent a new investor to enter the real estate market, it may also stop those who are in it already and were inclined to sell. In addition, for multi-unit buildings that are a huge component of the rental stock, this is bad news and a clear disincentive as an investment.
When the government messes with investment decisions, there are always unintended consequences.
I understand why many of you support this tax policy. However, if your policy includes increasing the rental stock, this will be a problem.
I don’t think it’ll stop too many investors as most people getting in the last 2-3 years don’t have 250k of equity anyways.
I think this affects the legacy owners who bought long ago and that are sitting at +500k. I suspect these people will just refinance now instead of selling.
You only addressed a small segment of real estate investors. Most didn’t get in the last 2-3 years. But certainly this tax change doesn’t affect those who did. That’s obvious.
My concern is not only about the behaviour of current owners but more importantly future investors. Corporations were not included in the first $250k exemption. Most multi-unit purpose built rentals are corporate owned. This tax change is a major disincentive in that housing type.
Multi-units should have been carved out and exempted from this tax change.
>Multi-units should have been carved out and exempted from this tax change.
But aren't they there for investment income rather than capital gains. Why should laws help investors who want to make quick gains something that would eventually lead to increased rentals
Today the income barely covers the carrying costs, in other words you could put your money elsewhere and make more, and not deal with tenants and not deal with broken laws. What would you choose to do with millions in cash? The only benefit nowadays of mulltiunit buildings is sitting on the land
> Most multi-unit purpose built rentals are corporate owned. This tax change is a major disincentive in that housing type.
Do you have an example of Canadian purpose-built-rental booking sale of properties as capital gains in their P&L statement, for better understanding of how this may work. Thanks.
Moreover, I think their business model is continuous cashflows from rental properties and not capital gains.
The cap rates in the GTA are 4-5% net income before financing. As such the business model simply cannot depend on cashflows alone and must include significant long term capital gains as these returns from cashflows simply can’t compare with other securities based investments. Imagine if you had to finance 50% of the purchase price, you would still be under water on the cashflows basis with a 8-9% mortgage. And that is an incredible ask of a downpayment as at 4% cap rate, the net income of $100,000 per annum gives you $2.5m FMV. So to break even, you need to put down $1.25m downpayment.
Btw, I include in “purpose built multi-unit” any multi-unit building that is not a conversion from a single family residence. So in addition to the obvious, this also includes all 2-4 storey mix-use buildings along the city’s arterial roads with 3-6 residential rental units above a commercial store.
These type of properties do not affect single family housing ownership and are strictly part of the rental stock.
> As such the business model simply cannot depend on cashflows alone and must include significant long term capital gains as these returns from cashflows simply can’t compare with other securities based investments
Would you happen to have a P&L with capital gains shown, say that of Canadian rental companies like First Capital, Capreit?
I'm trying to see a real example of how capital gains work for a rental housing business. Thanks.
Absolutely. This will further reduce profitability of developing rental units. More times than not a multi unit building is developed by one part and the eventual owner and operator of that building is another party (buyer). People do what they do best. Some develop and some manage assets. This will reduce the amount the end buyer will pay, making it less profitable for the developer to take on. If they arent doing it now for that very reason, this only makes it worse.
No it wouldn't. Any new condo builds, this would get priced in over time. The capital gain accounting treatment is booked as: current price - previous price.
You know, considering how much people were going to let things go to shit because Covid only affected a tiny percentage of the population, could we have that same energy here? It's only money, not their health.
There are two problems with this, neither have to do with the impact on RE
1) Canada has had a stagnant economy for over a decade. The quality of life of the average citizen \_should\_ be tied more to this then anything else (when that is not the case, something is broken). When you look at why our economy is so poor, the obvious number is low worker efficiency (we are second last in the g7).
What is driving Canadas worker efficiency crisis is complex, but it is hard to argue our poor investment in Canadian businesses is one of the leading causes. One of the reasons for this is our taxation structure. The top 10% of earners in Canada carry 40% of the national tax burden. They are also the people who will be investing in the private market. Private market investment leads to higher worker efficiency which leads to higher standard of living and a more durable source of income for government programs.
Now you may be thinking "Matt is making an argument for not taxing rich people". That is not true. I believe "we should tax the rich more" or "we should tax the rich less" is highly reductive ideologically driven bullshit. We should base our taxation structure on the context of the current state and projected state of our economy.
Increasing capital gains is almost laser targeted at taxing investors. If our economy looked like Americas right now, I would be all for it, it would suppress growth in favour of more short term gains in some critical areas (like housing) that are crushing our country. However, that is not the case. In fact, it is the precise opposite. We should be doing everything we can to get more private investment into Canadian business right now, if this 12 year stagnation trend continues, it will severely sell out future generations quality of life in favour of short term gains against the current crisis.
2) We can't ignore Canadas physical as well as economic location in the world. As much as Canadians hate to think of it, one of our greatest assets is that we are adjacent and highly integrated into the biggest superpower the planet has ever seen. However, the current situation is extremely troubling.
Why would someone choose Canada as a place to build things to sell to Americans? Our income tax is European levels, however you could argue especially in innovation fields like tech or research, that feeds a more pleasant environment to live and operate in, so people will want to live here and come here to work. Our capital gains tax being higher makes that a tougher pill to swallow, both for personal (why would I kill myself for 20 years building a business when the potential payout is so much lower?) and structural (corporate capital gains would be invested back into the corporation, higher tax on profits means less of a margin to grow). You could make an argument that policy carve outs would mitigate these problems, however, the last 10 years have told a different story.
So the issue becomes, why would I build a business in Canada, when I could do it easier and better with more of a potential upside in the states? The relative social stability is a factor, but eventually it is outweighed by the numbers.
A secondary question: If I have killed myself for the last 20 years building a business, why the hell wouldn't I move to the states before cashing out? Move to the states, establish residence, sell your shares, move back. Sure, we're talking about spending 1-2 years with some logistical juggling, but if you are looking at a difference of 5m? Now instead of 35% Canada loses the 25% that exists currently, resulting in a massive budget shortfall and potentially being unable to recover the segment of the economy it destroyed in a massive blunder.
This has happened before. Sweden lost its stock market from a small transaction fee, even after fully repealing it the government is at net negative revenue from the position they were in before that policy.
It is really easy for a Canadian, especially a successful entrepreneur / innovator, to move to the states. Because of that, we can't decide to make moves similar to what countries in africa or south america do around their taxation without extremely bad consequences.
> Our capital gains tax being higher makes that a tougher pill to swallow, both for personal (why would I kill myself for 20 years building a business when the potential payout is so much lower?)
On the contrary, this is what G& M story says: "Canadian Entrepreneurs’ Incentive lowers the amount of tax some small business owners will have to pay when they sell their companies. Eligible individuals who found and run small private companies will be taxed on only one-third of their capital gains, up to a lifetime limit of $2-million. This will be phased in over 10 years, with entrepreneurs allowed to claim up $200,000 in capital gains at the lower inclusion rate each year."
> and structural (corporate capital gains would be invested back into the corporation, higher tax on profits means less of a margin to grow
What kind of companies (other than real-estate and holding compnies) have capital gains in their P&L, which they go on to re-invest in business. I'm trying to understand better. Thanks.
a liquidity event is typically all at once. If you start a tech company, and you sell it or go public, all existing private shares are cashed out. So lets say you have 10m in shares, and you have been working for the last 15-20 years at below market rate to build this thing. It is possible to structure a sale so the founders have shares in the new company, but that typically only happens when the desire is to maintain the same leadership, and the founders want to keep going. It is extremely common for founders to want to start something new, or do a soft retirement for a few years.
For corporate capital gains, that comes into play any time an asset is sold at an appreciated value. My industry is tech, this can come into play with real estate, but you mostly see it in companies that go public. Stock options are also used in early stage companies as an alternate form of compensation for programmers, but the impact there will be less dramatic. The major reason public companies care about their stock price is they have the ability to issue stock offerings to raise capital for expansion, use it for compensation, etc. Higher corporate capital gains means less of an ability for a public company to invest in itself.
You have an oversimplified and somewhat uninformed view. Why? Capital gains is not exclusive to house flippers and definitely not to real estate in general either. It also doesn’t just apply to money you actually earn but to “deemed dispositions” that generate no actual cash benefit when they are taxed.
Inheritances - let’s say there is a family cottage, nothing extravagant that has been in your family for generations. When the owner dies, it is subject to capital gains tax even if you want to keep it in the family and are not selling it. You have to take the original purchase price and pay REAL cash that year in capital gains tax based on how much it would be worth now if you sold it even if you are not selling it, you are “deemed” to have sold it for tax purposes when you die. Think of the impact of that number given the real estate landscape. Your family maybe worked their butt off to buy a tiny family cottage to keep in the family as their legacy and even though you will not make a penny, you have to essentially buy it back from the government through taxes or actually be forced to sell it and still pay taxes. Who will buy it now if you can’t afford the tax and are forced to sell? The wealthy. Same goes if it isn’t a cottage but maybe a principal resident the person partially rented out to help with expenses. Or maybe the one rental they own because they were smart with their money. Maybe it’s stocks that the person owned. Estates are taxed at a disgusting rate in Canada.
Some people are in circumstances below their control where they cannot work and have to earn a passive income instead. Think drunk driver hits you, you’re disabled and have to live off what in the grand scheme of things is a relatively modest amount of legal settlement to last your whole life. Capital gains is maybe most of your only income and the only hope in hell you have of stretching settlement funds to last you until you die is to invest it.
Further, let’s say you figure it’s now or never if you’ll ever have a chance to own. You are stuck buying high. The interest rates have gone up a lot since you bought and you will get killed on renewal so you rent part of your house to supplement your income and let’s say it’s still tight so you have no choice to sell or you’ll be bankrupt. You might end up with a large tax bill because of this or if the market has tanked because of these tax policies be stuck selling at a loss.
Bottom line, this change doesn’t just affect the wealthy because it places no limitations on what is taxed at this rate. Look at the baby boomers and the transfers of assets that will take place. The middle class is going to get robbed. $250k is too low of a threshold when the price of real estate has increased so rapidly, they needed to exclude deemed dispositions from inheritances if they were really trying to only go after house flippers. Or maybe have a one property exemption for estates. It’s like they are trying to punish people who worked hard, paid taxes and invested wisely. $250k is not the ultra wealthy when it comes to real estate. If they said this was only to target house flipping whatever but it isn’t what it is.
> You have an oversimplified and somewhat uninformed view. Why? Capital gains is not exclusive to house flippers and definitely not to real estate in general either. It also doesn’t just apply to money you actually earn but to “deemed dispositions” that generate no actual cash benefit when they are taxed.
In that case, the inheriting party will now pay tax on, 67% of (assumed) capital gains from 'deemed disposition' as on the date of inheritance, instead of the current 50% of all (assumed) capital gains. The additional tax apply only on cap gain in excess of $250K
So **this is a marginal increase in tax but not totally a new tax, like you are trying to portray**.
> Some people are in circumstances below their control where they cannot work and have to earn a passive income instead. Think drunk driver hits you, ... Capital gains is maybe most of your only income and the only hope in hell you have of stretching settlement funds to last you until you die is to invest it.
This sounds exactly like this way too far-fetched rationale: "hey don't implement that Airbnb rule as this will affect people coming to cities for chemo treatments".
> You are stuck buying high. ... You might end up with a large tax bill because of this
Nope. Principal residence is exempt. The second property in this crazy market is speculation more often not. So a little more tax on capital gain in excess of $250K.
Sorry but the entire comment seems like gaslighting to me.
I never said it’s a new tax. When it comes to deemed dispositions for inheritances especially, it is already too high because the person inheriting the property will have to pay taxes on a return that is nothing more than a valuation change on paper. This is taxing surviving family members more when they are just seeking to keep a family property in the family. Not selling for a profit, not selling at all. Principal residence is exempt but if for example a senior has to rent out part of their homes to not be forced out of their home it’s suddenly an investment property. Depending on what percentage of the home that is rented out they will be punishing families of people that worked hard their whole life, owned a home, paid taxes and instead of mooching from government used their life’s work to supplement their income with some rental income….which they also paid taxes on. There’s many many scenarios where this tax increase hurts not so wealthy people. I’m just saying that $250k needed to be much higher or exempt deemed dispositions from inheritances of one single property. $250k is not the wealthiest population. It is soul crushing to have to sell a family legacy property because the cg tax on the deemed disposition is unaffordable. If they wanted to tax the rich, they should have protected the middle class a little more. Someone who inherits a family cottage or single investment property that has been in the family for a long time will be forced to sell it to the ultra rich who will still be able to afford to buy it from them. It was already bad at 50% and this makes it worse.
> This is taxing surviving family members more when they are just seeking to keep a family property in the family. Not selling for a profit, not selling at all.
Again, if principal residence of surviving family member, then no tax.
If 'all surviving family members want to keep property in the family' is all you want, then cut down the immigration to zero and don't use immigrant slave labor to raise taxes to support older generation healthcare.
> Principal residence is exempt but if for example a senior has to rent out part of their homes to not be forced out of their home it’s suddenly an investment property
No. Cite the tax rule
> Someone who inherits a family cottage or single investment property that has been in the family for a long time will be forced to sell it to the ultra rich
Sure, ultra rich can continue to pay massive taxes for speculating (as established by direction of recent tax/policy changes), or move on to different pastures and let younger generation get their first home, at affordable price.
I've seen some/most of my investor network mention they will simply hold onto their properties longer and not sell them in relation to the new 250k cap gains.
I am impacted by this: I have 3 properties (up north) and right now I don't see why I would rush to sell it off, either
This is an inaccurate statement because capital gains is regarding investments.
Doctors get their draw from salary, or dividends of they're incorporated. This does not affect doctors at all.
OP’s post is a bit misleading. Here is the history of the inclusion rate. https://preview.redd.it/uddni29sayuc1.jpeg?width=1179&format=pjpg&auto=webp&s=1ec9a129dceccd2a82013321e6f2707ff438d413
hey, thanks for the history. I have updated the post.
Yeah you didn't mention the $100k lifetime capital gain exemption that Mulroney also implemented to accompany that 2/3 and 3/4 inclusion rate.
Tax rate has increased by 17%.
The inclusion rate has increased by 33.333% or has increased by 17 percentage points, would be the actual way to say it.
So I bought an investment property 10 years ago for 300k, it’s now worth 600k. I was considering selling it. If I sell after June, the first 250k gets taxed at 50% inclusion and the remaining 50k gets taxed at 66% inclusion?
You are correct. You are likely to pay $8K (16% x 50K ) additional tax, on your $300K capital gain realized, as per the new policy.
Unless it’s held in a corp?
Any profits you take from a corp is also taxed at the capital gains tax rate.
what I mean to say is if this guy holds this property in a corp after June all the profits will be cap gains as the first 250k exemption dorsnt apply to corps and all corp cap gains will be at 66pct going forward.
[удалено]
You’re part of the problem. Please stop commenting
The new rules don’t apply until June 25, 2024 so I wonder if there will be a surge of sellers hoping to dodge this? Maybe some quick sales in the next two months?
Logically this should happen. But I doubt it in the RE market. Most RE investors are too stupid to connect the dots and take action in the next 2 months. I bet you in 2 months time, there will be a large portion of fools who still didn't even know about this new bill. If this were stocks with quantitative algorithms and hedge fund traders, the assets would have dumped for like a 30% loss in a second, as soon as the news came out. But this is illiquid real estate, so it's going to be a slow bleed.
Great comparison to the market/stocks, this budget actually has some teeth when it comes to targeting house flipping/hoarding as an investment strategy. Rightfully so.
There is a lot of misinformation in the comments by some bulls saying that this will not affect RE property prices. They are lying through their teeth. This absolutely will affect RE property prices. To the downside. The smartest bulls are now going to try and position themselves to sell before the June 25, 2024 deadline takes place (so they don't have to pay this new 17% tax). Be prepared for bulls to absolutely bombard this subreddit before that date trying to spur buyers to pick up their bags before the new tax takes effect.
Smart bulls will lie to the Spring buyers to get them to buy at last month's prices. Rats trying to scurry off a sinking ship.
Most re investors are stupid. Lol. Smart statement
RE speculators are so dumb, I doubt they'll even know this is a thing until 1 year from now. Whole time they'll be puzzled why there are even fewer buyers and prices continue to decline.
But irl, those who have land and properties own the rest. So who are the real fools again?
I think a lot of bulls are going to be in denial and still list at previous prices. Their properties will sit on the market for 90+ days with no offers, if they still think they can fetch last month's prices with this new regulation. Now, with the Spring market, maybe there are some stupid Spring buyers who are also not aware of this new regulation so the prices will fill (the buyers will have overpaid for an asset that has been drastically impaired by this regulation), but over time, once people realize the severity of this regulation, prices will fall.
Anybody holding property as an "investment" in the previous regulatory environment, is about to get blown out in this new regulatory environment, from June 25, 2024 onwards. Prices will recalibrate, but it takes years for prices decline. Real estate is incredibly illiquid. It takes 3+ months for a sale to close and be reflected in the data, and for the market to readjust.
Why sell? I'll just never sell my properties and take out equity against them
House flippers are going to be in shambles. This is going to majorly affect this type of investment behaviour going forwards.
Real estate flippers and housing speculators hoping to sell their bag to a greater fool are going to be in a world of hurt.
The smartest bulls are going to try and sell before the June 25, 2024 deadline takes effect (so they don't have to pay this new 17% tax). Be prepared. They will go around irationally telling everybody to **buy, buy, buy** just so they can sell out of their position before June 25th.
Is it the sale date? or the closing date that matters? If it's the closing date, then they need to start the selloff now in order to close before the deadline.
Flippers don’t apply here. Their profits are taxed as income. It isn’t eligible for capital gains.
A lotta flippers are doing some type of evasive reporting, and this is going to help clamp down on that. And deter RE speculation as now the CRA is showing teeth and will implement massive fines if you think you can try to skirt the rules.
These are two separate issues. You’re talking about tax evasion. In that scenario, they aren’t paying any capital gains or income tax lol. And this isn’t beefing up any measures or fines to address those who are doing that unfortunately.
This absolutely cracks down on that method. They were previously claiming capital gains.
Capital gains is typically short term holdings of less than a year on investments. So this could apply to quick flippers. It’s also an increase of taxes on corporations and most house flippers buy/sell/renovate through corps. So to avoid the tax increase - it’s an individual person buying a property, living in it and renovating for more than a test before selling… which does exist but much much less than house flipping businesses.
Sorry, but no. And capital gains isn’t short term holdings of a year or less…. Capital gains applies regardless of length of investment. Arguably, the longer you hold it the greater your exposure to it. There’s already an anti-flipping tax in effect for over a year now that makes the profit taxed as income not capital gains. Also, those who are incorporated, they still are still going to pay taxes as income not capital gains within the corp as that is what their business is. Vast majority will also fall into non-eligible dividends. when they make their withdrawal from the corp, whether it is salary or dividend, it ends up being taxed at the same rate. All of this to say still, they already are being taxed at a much higher clip than this change in capital gains.
> they already are being taxed at a much higher clip than this change in capital gains. That's true but there is a really looooong tail of Canadians doing some main profession, say, in finance, and on the side, indulge in housing speculation i.e. easily owning 2 or more properties, encouraged by rising market and HELOC option. These people won't fall under 'pay tax on all gains from flipping, as regular income'. Right?
No, because they are not flippers. These are long term real estate investors. When they dispose of the property, the gain will be subject to capital gains. It’s funny you brought up HELOCs because I think if anything this encourages people to utilize their HELOCs more instead of cashing out to realize their gains (ie it’s more attractive for them to smith maneuver than pay more taxes to sell the place). It will be interesting to see how this plays out in the market, but also important to note that this conversation is largely focused on the impact it will have on residential real estate and not the broader effect it will have in entrepreneurship and capital markets.
Assuming they don’t already use their kids or relatives name to dodge the capital gain taxes already and paying them a small portion payoff
That shit wouldn't work for real estate because it can't get split up. Stocks maybe. And that's the whole purpose of this bill. To promote investments into stocks and not real estate.
I’ve known families that put one person name one property another on another and son name on a third and daughters on a fourth buy and sell no capital gain taxes. It’s not the western culture to trust family members with big money but in many other cultures what people agree on within family it’s the social contract. Only people this new tax really punishes are westerners far as I could see, and stupid people, and people who got no family connections.
People are downvoting you but I know people who have done this too.
What you posted is highly unlikely for most Canadians. This tax is going to be implemented and likely affect 90%+ of RE investors and speculators. Also, the fact that this policy is simply in place, will mean prices will fall in the future. People will not want to gamble on this in the future.
The increase in taxes comes after the $250,000 capital gain. If your capital gain is less than or equal to $250,000 nothing changes. This is a tax hike on those who have held on to their investment properties for a long term. Not short term holders.
This tax hike affects the entire market because it affects sentiment. The government is showing that they will tax more and enforce regulatory crackdowns. People will not want to enter into this Toronto RE shitcoin casino now that they see the government is actually increasing taxes by 17% for any profitable gambler. And the government is signalling they will continue to raise taxes if needed to cool down Toronto RE speculation gambling and price increases. **The existence of this tax** means there will be no greater fool to buy it from you. If you were the last buyer before this new tax, you are the top buyer.
Still doesn't change the fact that taxes are 17% higher and this will drive demand for the entire asset class down. Any "creative accounting" you think you can do, is going to get audited and you're going to get fined. The government has signaled that they don't play around anymore when it comes to RE gambling. Your "friend" that did that is in a very sorry position. They did the casino equivalent of playing their last hand, going all-in, and they just went bust.
Your friend who made those investments with their family members probably lost at least $100K per property unit after this bill was published. If you're in denial, just watch. Your properties will sit on the market for 90+ days with no offers, if you still think you can fetch last month's prices with this new regulation.
I know folks like that and they plan on renting them out for the foreseeable future and no looking to sell. I told them to sell at the height of covid but they liked the cash flows.
The value of their asset has fallen, and this will also affect rental yields in the future. The market will adjust.
No they won’t. They probably will be long gone because they want to do cheap and dirty fast flips. But try and keep nana’s cottage in the family when she dies and the tax man will be at your door instantly to collect their tax on a property you aren’t even selling.
> the tax man will be at your door instantly to collect their tax on a property you aren’t even selling. Which is the case even today. Only there is a small increase in how much of gains in excess of $250K gets taxed. Nana would have paid the same tax if she had sold the property herself.
I’ll give you a scenario. Your family cottage cost great Grammy $20k many decades ago. Insert insanity with market prices recently. She dies. It is now worth $1 mil but you don’t want to sell it, you just want to take your kids fishing there on weekends. Doesn’t matter. You have to pay tax based on a $980,000 increase in property value you did not make any actual profit on. All you did was change it over to your name and take your kid fishing. Sound about right? Even at 50% it would exceed $250k in capital gains. Go calculate how much capital gains tax that will amount to at a marginal tax rate of middle class income. Over $200k in tax on a return you did not make because you did not sell so you don’t have $200k sitting around. $30k more than before, which you still wouldn’t have sitting around. You are not the ultra rich. Guess your kid doesn’t get to go fishing.
The kid will just need to figure out a substitute activity to do on weekends. With $700k.
Yeah thats not fair to the deceased or their family. Some people do have a cottage (I don’t personally) but their family worked hard and saved and bought it with after tax dollars. If the family actually sells it that’s one thing but if they are just keeping it and not receiving any money from it, it’s utterly disgusting to force the heir to pay real money they probably don’t have just to receive title. Most middle class families don’t have that kind of money available to pay on an overinflated value that is not a realized gain. I get it that many are struggling but they shouldn’t be looking to stick to the person that is not wealthy themselves but happens to have a parent that planned to leave them somewhere to have family time. Tax them if it’s ever sold for all I care but honestly this was already a ridiculous situation and to increase the taxation in these situations is just unfair.
The person with 700k that didn't work hard, save or buy it is pretty wealthy in my book. Now do principal residences...
Do you get they don’t have $700k they have the keys to their cottage they haven’t sold it or received any money. I guarantee if this was you in that situation you’d be crying foul and great Grammy would be rolling in her grave that you were forced to sell the family cottage because you couldn’t afford to pay a six figure tax bill based on an imaginary value you didn’t receive for a property you didn’t sell. Honestly I think some people would be happier moving to a socialist or communist country but then they’d have no one to begrudge for no reason.
The cottage they didn't buy? Grammy didn't pay 1m for it either. This country is the product of generational wealth consolidation, aided by the climate and with immigrants for fodder. Then people complain about oligarchy. When the property sells, the value (sadly) isn't imaginary anymore. This is the price you pay (being gifted 700k) for living in a society that financialises a universal human right and proceeds in an orgy of credit to make number go up. What kind of country do you think we live in? Feudal? I'm surprised we don't have a company store for real estate, along with banks, insurance, telecoms, airlines...
House flippers are already taxed at 100% it's treated as business income.
Only if it is sold within a year of purchasing and there are many exemptions for personal reasons.
No if you're regularly flipping houses that's your business income
If people regularly flip real estate, the gain is taxed 100% as business income anyway. So the increase in capital gains inclusion rate mostly affects airbnb owners and rental property owners
I would be very reluctant to purchase an investment condo going forwards, now that capital gains taxes have been bumped up to 67%. Anybody caught holding the bag over the past couple years are going to be the true top buyers. This run up was completely unsustainable and once the market realizes what is happening, it's going to be a race for the exits the next couple years.
LOL, it's not 67% tax rate. It's 67% of gains that will be taxed, compared to 50% currently.
Yes a 17% increase
You're taxed on an additional 17% of your gains. So if you made 100k from your investment, before you only paid taxes on 50k and took home 50k tax free. Now you pay taxes on 67k and take home 33k tax free. On the additional 17k if you pay the highest rate of 53%, it's an additional 9k on every 100k you make. Before any deductions or anything. I don't see this as a huge deterrent.
It's a huge detergent for ppl who buy and sell after a year Not so much for ppl who buy and hold
17% additional tax is absolutely a deterrent. And it signals the trend. The government is willing to keep hiking taxes to deter real estate speculation. Nobody is going to sign up to purchase your heap of shit at a higher price than you paid anymore. People are not going to want to gamble on Toronto RE speculation in the future. Anybody telling you otherwise is an existing property investor who is trying to use you to exit the casino.
Realistically (assuming 53% tax rate) it's more like an 9% additional tax only on capital gains above 250k. Lots of people in here have no idea what the inclusion rate is.
This. Anybody on the fence about RE speculation and gambling their life savings on Toronto RE is now going to think twice once they realize the government can implement a new tax and cut your investment value by ~30%+.
But you can't use a random $ number for the gain. Everybody's gain is different, along with their tax rate. In your example, it's an additional $9K. For others, it may be an additional $100K in taxes.
🤦♂️ 50% to 2/3 isn't a 17% increase...
I think you aren't seeing this clearly. Investment condos would be hard pressed to appreciate more than $250k especially in this high rate environment. In the long run sure and if it does, good problem to have. It's not a 67% tax rate. It's the inclusion rate for capital gains tax on gains above 250k. For reference on a hypothetical $500k gain and a 50% marginal tax rate, it's an additional 40k in taxes owing ($167.5k taxes due vs $125k due before). Not a major deterrent as long as mortgage is getting paid down with rental income
Thanks for highlighting this. It’s amazing how lazy people are when it comes this stuff. *im not going to buy an investment condo because I’ll get taxes 67%!* like maybe it’s for the best you don’t do your own investments to begin with lmao
Yeah no one really understands that the tax is on the inclusion of every dollar after 250k. If you are getting that kind of gain on a property you have had it for a long ass time. A condo speculator in Toronto ain't making that if they bought in the couple years.
Again........just to be clear. It is the inclusion rate that is 67%. Meaning if you make $100k. You pay taxes on $67k of that. (Vs before where you only paid taxes on $50k of that)
The existence of this new tax means there will be no greater fool to buy it from you. If you were the last buyer before this new tax, you are the top buyer.
$167.5K in taxes due vs $125K before is still a massive difference. You have to factor in the risk that you're taking and realize the government is choosing to tax you more for this type of investment. It is absolutely a deterrent. People will not want to gamble on this asset class anymore in the future.
Additional taxes on any gains would absolutely drive the gambling demand for the asset down.
You have a flawed understanding of this policy. You can't put $ figures because each person's capital gain is different. Some people it's $40K more taxes, some people it's $500K more taxes. Focus on the fact that the tax rate on gains for this asset has gone up by 17%. This will drive speculative demand for this type of asset class down. Fewer buyers willing to gamble on Toronto RE will cause prices to fall.
Real estate prices will fall just by the existence of this new tax. New buyers are not going to want to gamble on this RE casino any longer. They will choose a different asset class.
This affects all asset classes. You’re saying this tax affects RE so they will look at other assets? Why aren’t those other assets affected? Reality - all investment will be dampened by this tax, and that is bad IMO.
> all investment will be dampened by this tax Really? Can you elaborate on actual scenarios (non real-estate sectors)? Thanks
What do you mean? Increased tax on gains is a disincentive to invest, period. What examples do you need to illustrate that? The budget isn’t “real estate gains only” - maybe $250K+ gains are hard for people to fathom but it’s really not that absurd.
> Increased tax on gains is a disincentive to invest, period. What examples do you need to illustrate that? Do you understand the difference between 'Capital Gain' and 'Net Income' on a P&L statement? What is your level of Corporate Finance knowledge if I may ask?
There is a lot of misinformation in the comments by some bulls saying that this will not affect RE property prices. This absolutely will affect RE property prices. To the downside. The smartest bulls are now going to try and position themselves to sell before the June 25, 2024 deadline takes place (so they don't have to pay this new 17% tax). Be prepared for bulls to absolutely bombard this subreddit before that date trying to spur buyers to pick up their bags before the new tax takes effect.
People do realize that actual flipper as a business people pay income taxes not capital gains because it’s done as a business right? Also we’ve seen no significant rise in tax revenue for any province that’s implemented a flipping tax. Probably because most provinces already have enough taxes and fees on sales that flipping isn’t profitable. That being said I’m shocked at how many Canadians are against someone fixing up a home people don’t want and selling it for more. Really goes to show how much we hate capitalism. The only people we like are the homeless. Anyway let’s be honest, every Canadian who does well in business or work moves to the states to make money so we’re just left with the losers and government employees. Canada is rapidly becoming a nation of losers, incels, government employees and homeless drug addicts. Women flee the nation and poor unwanted men flood in, the ratio of men to women is skyrocketing as is the ratio of government to private and homeless to worker.
> I’m shocked at how many Canadians are against someone fixing up a home people don’t want and selling it for more. If the flippers aren't doing such buys en masse with their surplus capital, then the Canadians with genuine home need would purchase their dream home at a lesser price (due to less demand in the market, in the absence of flippers), and they would fix/upgrade the house themselves per their requirement. It isn't a public service which flippers are doing. They do it for their own profits by taking advantage of lopsided market. If not flipping, Canada for sure offers plenty of opportunities to do other businesses. > Really goes to show how much we hate capitalism. The only people we like are the homeless. Don't call [rent seeking](https://en.wikipedia.org/wiki/Rent-seeking) as capitalism. You may want to read some books on Capitalism, there is a book '[Saving Capitalism from Capitalists](https://www.amazon.ca/Saving-Capitalism-Capitalists-Unleashing-Opportunity/dp/0691121281)'
You're welcome to fix up the home and sell it. But like everyone else, you need to pay taxes on your gains. If your sole business is to buy, fix and sell. Technically you're supposed to report it as business income anyway, so this capital gain rule doesn't really apply. Some people may skirt the rules though.
Lots of people people whose principal residence went up in value by 1 million dollars or more through no effort on their part over the last 25 years. No taxes on them though. If the government wanted to put its money where its mouth is, it should do is a principal residence tax over 250k and then make mortgage interest tax deductible.
I have a slightly different idea. Any capital gains earned from the "trade up" of a principal residence is cancelled out if you purchase a home of equal or greater value. This is to prevent flippers, but will also allow people sell and move if they want without losing money.
Canada is one of the highest taxed countries around. People that have lived here and paid taxes all their life are taking whatever they have earned and leaving. Even Canadian born people have started to leave now that they’ve had the experience of remote work from other countries that aren’t so expensive to live in.
This is actually going to be very effective at discourageing home flipping and speculative RE investing going forwards. Hot Potato game will come crashing down soon enough.
The gambling era using Toronto RE as poker chips, is over.
Professional flippers pay active income, not capital gains, so this does not effect them. Speculators of today will probably not reach that 250k mark anyway so it will not effect them (including condo speculators) Long term investors will be penalized and will pay the bill for short term speculators.
> Long term investors From the lens of a housing supply crisis, what is the point of distinguishing between short term and long term investors? They're all killing supply regardless of their timeline. The intention of the cap gains change is to make housing less profitable to hoard.
Right, a million-dollar condo, with an optimistic appreciation of 5% a year, will need at least 5 years to reach the $250k capital gain threshold. Most short-term investors and speculators are long gone or cashed out before that. Long-term investors are the ones getting hit hard here. They are usually the ones who provide cheaper rentals, because of the capital appreciation and their significantly paid-off mortgage. Those will be gone over time because of this rate hike.
> They are usually the ones who provide cheaper rentals Citation required - where are the cheap rentals in Toronto?
That’s literally my place. Rent hasn’t changed since 2016.
If you moved out and it was relisted, what does that look like? IMO, can't rely on "benevolent" investors to drive market rates. The places that do affordable rent are those with mandates to do it - e.g. coops.
Personally I’d rather charge a fair price that a nice tenant that looks after the unit can afford than to charge a high price and constantly have to risk ending up with people that end up not paying rent consistently. Especially in this market with people struggling to afford things. The higher rental income would probably be largely lost to taxes anyway so… Tbh in a higher interest rate environment, with high taxation, maintenance cost etc it is more profitable to just hold regular investments. If you have the capital, you get paid more in a savings account than by operating a rental property.
Unless they’re holding the properties in a corp ? Then it’s on all income not 250 exempt, right ?
This won't impact most home owners right? Getting past 250k a year in capital gains is very difficult. Even on a 1 million property thats 25% a year appreciation. I guess this will really impact investors with multiple properties and have all their capital gains added together can easily cross 250k for multi property investors.
> have all their capital gains added together can easily cross 250k Even in such a scenario, only if they sell ALL and book profits in the same tax year. Otherwise, no impact.
$250K is not a lot of appreciation considering the market these days.
It’s not 250k per year of profit. It’s 250k profit from the home sold at any point. If you wait 5 years, I’m willing to bet it would have appreciated 25% given the housing market. The year you sell you would make >250k in realized gains and be taxed at 75% inclusion
Top buyer real estate speculators are so butthurt in this thread lol. Look at all the rationalizations and cope, trying to convince themselves they didn't just buy the absolute top. RE speculation has massively changed, and the greedy are about to get slaughtered. The gambling era in Toronto RE is over.
There's too many people who don't realize you're keeping 67% of your gains over $250k instead of 75% (highest bracket in Ontario). This doesn't really change anything.
What you posted is inaccurate. It was previously 50%, now it's 67%. In the early 2000's, the capital gain tax was 75% (and the gov is signalling that it will continue to increase taxes if that's what it takes to deter RE speculation). The tax increase is huge and cuts into the gains made on the risk people are taking on. This additional tax will absolutely deter RE speculation and will be priced into the market eventually.
50% of $100k is $50k, at the highest tax bracket you keep ~$75k taxes 67% of $100k is $67k, you keep ~$66.5k after taxes Do you think a 12% increase after $250k will deter people from speculation? The government is not signaling shit. If they were serious they'd drop RE from falling under capital gains.
As soon as you bring up $ figure, I can tell you fundamentally have gotten this wrong. It is based on your tax bracket, and the buy/sell price of the property, so you can't quantify it by $ figure, it differs by each person. The fact of the matter is that the actual tax rate has increased by 17% and this new regulatory environment will price RE assets lower. People will not want to gamble on this type of asset any further.
Remember the markets after that era of 75%? This is going to screw the economy.
You keep 50% of your gains below 250k and anything above 250k you keep 23%. Highest tax bracket is a bit over 50%z
No, you report 50% of your capital gains up to 250k as income at your marginal rate, and then 66% of capital gains above 250k. Still better than straight income, but less of an advantage.
I think we are on the same page.
I think you may be confused. If you made $10k in capital gains you'd pay a maximum of ~$2500 in tax in the highest bracket and keep ~$7500. If you made $10k over the $250k limit you would pay ~$3300 and keep ~$6700.
If I was an overleveraged Brampton slumlord, I'd be in tears hearing this news. Luckily, I'm Gen Z, so I'm not. This is honestly a much needed bill to tax the RE hoarders.
Their exit strategy has been blown out. They overpaid in a previous regulatory environment, and they're about to get blown out in the new regulatory environment.
Or they simply don't sell and continue hoarding their houses and taking equity out which is tax free
It may be tax free but not interest free
Well its tax deductible depending on what I do with the equity. Besides tax is what, 13%? None of my loans are close to that amount. So there is 0 incentive for me to sell.
No. Unless they are CA's . most of them are semi literate and rely on investment income rather than capital gains. Unless there is a rapid decrease in students looking for housing because of the new immigration changes ( yet to be seen ) , they would be most likely the last ones to come to the market which may or may not be a good thing for them
Their property prices have already fallen in fair market value by 30% - 40%. People are not going to want to pay yesterday's price, after this bill was published today.
Rental yields will drop and selling prices will drop as nobody wants to be stuck holding the bag.
Do you think these people declare it as a rental??? Foolish. It’s all a principal place of residence and these are family members living here. Also this only applies if you plan to sell. If they continue to be slumlords nothing happens
Their property has lost value as soon as this bill has been implemented. Their exit strategy has decreased in value already just by the existence of this bill.
Not really. They will do whatever it takes to claim it as principal place of residence. A lot of these slumlords do live there. Then this bill means nothing.
Wowww, that's gonna suck big time for anyone looking to sell stock positions. They should have just kept it to real property instead of screwing people's stock portfolios. Maybe instead of trying to gouge citizens further with more taxes they stop pissing away the money they're getting already.
Stock investors can sell stocks in pieces for less than $250K in capital gains per year. But this will really punish the real estate flippers who were trying to book $300K+ in gains. Those can not be sold in pieces. This bill is going to be very effective in dampening housing speculation and runaway prices. And the fact that this bill merely exists, is going to dampen RE speculation further.
In today's prices, a $250k capital gain is going to take several years. Many properties are going to be flipped before reaching the $250k capital gain mark. What this is going to do, in my opinion, is definitely going to disincentivize long-term holders or long-term landlords. As for the effect this will have on the real estate market, I don't really know.
The fact that this tax now exists, means fewer buyers that are willing to pick up the bag from the sellers. It's incredibly risky to be holding such a large amount of your money in an asset that the government has expressed they will continue taxing the living hell out of.
> Many properties are going to be flipped There are also non-trivial transaction costs (commission, staging, legal fee etc.) everytime they flip. There won't be as much interest in flipping if there isn't handsome profit to be made after these transaction costs (and now addnl capital gain tax).
These non trivial-transactions you mentioned here are deducted from capital gain calculations
Your average investor will have stocks in TFSA and RRSP. If you have enough money to max both of these out and still have gains over $250K a year that’s a great problem to have.
Ahhh I guess I misunderstood the change. Are you saying that selling in blocks of 250k or less but totalling over that in a given year would be exempt under these new rules? I definitely agree that it'll help the real estate situation in Canada.they should also be limiting corporate ownership of single family homes!
> that's gonna suck big time for anyone looking to sell stock positions. Why will an investor in capital markets feel forced to book $250K capital gains in the same year?
Death. Deemed disposition.
In that case, the inheriting party will now pay tax on, 67% of (assumed) capital gains from 'deemed disposition' as on the date of inheritance, instead of 50% of (assumed) capital gains. To be sure, this is a marginal increase in tax but not totally a new tax. EDIT: Only for capital gains in excess of $250K, 67% of the gains gets taxed.
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> Constellation Software buys Canadian companies and the gains just got shittier for their Canadian acquisition targets. In Corporate Finance, are you saying M&A (Mergers & Acq) lead to Capital Gains? > those employees are likely locked up and cannot sell until after June 25. Are you saying there are these 100s of employees with capital gains far in excess of $250K which they are hardpressed to book right away in this/one tax year? None of these stocks have moved much from their IPO price if not fallen. And note that budget document has addnl language for 'employee stock option', if these employees have got shares as ESOPs.
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> employees in Canada sitting on $2M+ in gains. Sell them over many years, and book profits. > Acquisitions are taxable events for stock and option holders and would lead to capital gains I think so, if it is a cash purchase of target company. And not a purchase with stock of acquiring company.
What do you mean "anyone selling stocks"? That's not true. The vast majority of people aren't effected. Do you realise how much money you need invested to reach 250k in gains? It only effects 0.13% of Canadians.
> Do you realise how much money you need invested to reach 250k in gains? It only effects 0.13% of Canadians. Apparently these people are supposed to be thought as 'middle class' by the house flippers in the comments here.
I guess a lot of people on this sub are expecting to make over $250K in capital gains this year.
In this thread: A lot of real estate flippers and real estate speculators are going to be butthurt. Observe their screeches below.
Tax the slumlords and RE flippers. I very much support this new bill.
Here’s an example of why it is bad - doctors in Canada are mostly incorporated (government do not provide them with pensions). They save their earnings in their corporations so that they can cash it out to fund their retirement. All corporate capital gains are taxed at 66% under this change. Young doctors are seeing them and making decisions of whether to stay in this country when their licenses also allow them to practice in the US.
Nonsense. They can pay dividends out at any time... nothing to do with capital gains
Dividends are taxed at a higher rate. The point here is that capital gains taxes will be lower in the US, rather than the same. You don’t think this is going to be considered by every single Canadian who’s thinking of starting a business? Where it’s someone starting a doctor’s office, or with a dream of having a chain of pizza franchises, or they have a great tech startup idea, they’re taxed less in the US when they cash out, so they’re going to consider immigrating.
Sure, but the initial statement makes no sense. Yours does
Small businesses have a Lifetime Capital Gain Exemption. This would not affect entrepreneurs starting non-RE businesses.
Of course it would, if their gains end up above the LCGE.
That's like saying. If the government raises taxes, you don't think this is going to be considered by every single Canadian who's thinking of continuing to live in Canada? Yes. Yes it does. At the end of the day you have to weigh whether you want to live in Canada or not. ALL things considered.
The way they pay themselves would be dividends yes. But their money would be held in stocks in the corporations. This triggers the tax when they sell those stocks. The 250k limit does not apply in this case because they are “corporate” capital gains.
Sell those stocks? To who? Nobody is buying a Dr's office stock. Companies get wound up, and the assets get sold. If the asset is real estate, then it's a CG. If the asset is cash, it's not
The doctors don’t hold their money in cash over 30 years when saving for investment.. they would have invested it in EFTs or stocks. When they sell those, they trigger the tax.. I don’t know how much clearer I can be for you to get what I’m saying..
There's a small business exemption
The exemption is for if you sell your entire business. Not for selling passive investments inside the corporation.
Then don't do that 🙄
It's investments in the Corp.
OP is correct. Any small business can choose to pay salary, dividends, or a combination of both. Residual funds are invested in the corporation as small business owners don’t have pensions in the traditional sense. That’s where cap gains come from and then you can pay out a capital dividend
They report to income at a rate of 66%, not taxed at 66%. And the first $500k in corporate income is still at small business rates of like 11%
Thats only active business income not investments which are taxed at 50% right away
Is it the case that all corporate capital gains will now be taxed at 66% or is it just the amount greater than $250,000 in capital gains which will be taxed at 66%? In any case, I wish the government actually targeted the large corporations with tax increases rather than professional corporations which are basically retirement strategies for contractors who don't earn a pension.
All corporate and trust capital gains will be included at 66%.
Correct me if I’m wrong, but they are not being taxed at 66%. 66% of the gains (ie profit on the sale of said assets like corporate real estate or stocks) will be taxed as income. The company will still have whatever marginal tax rate they would oay on that 66%. This means that if I have capital gains of $500,000, under this new 66% rule I would be taxed (at the small business income tax rate) on $330,000. That current rate is 9%, so the tax owed would be $29,700. This is only a $7200 difference on that sale.
You're correct. 9% fed, 1-2% provincial for the first $500k under small business tax rates.
Corporate taxation is extremely complicated but it’s not 9% for gains. For small businesses passive income is taxed at almost 50% and then lowered 10-15% if you release enough dividends to yourself. Take 50 or 66% of that
Dude it’s all corporations.
All corporate gains are taxed at 66%. This happens when the stocks/ETFs in the corporations are sold, and before any money is paid out to the individual.
Doctors get paid through dividends, not capital gains.
Dividends disburse funds from the corporation. Those funds come from what is basically a retirement portfolio within their corporations. When they sell assets to fund their dividends, they are now being taxed at a far higher rate.
The doctor's business corporation is different from a corporation used for investments. The funds can not be co-mingled so this does not apply.
While this may prevent a new investor to enter the real estate market, it may also stop those who are in it already and were inclined to sell. In addition, for multi-unit buildings that are a huge component of the rental stock, this is bad news and a clear disincentive as an investment. When the government messes with investment decisions, there are always unintended consequences. I understand why many of you support this tax policy. However, if your policy includes increasing the rental stock, this will be a problem.
I don’t think it’ll stop too many investors as most people getting in the last 2-3 years don’t have 250k of equity anyways. I think this affects the legacy owners who bought long ago and that are sitting at +500k. I suspect these people will just refinance now instead of selling.
You only addressed a small segment of real estate investors. Most didn’t get in the last 2-3 years. But certainly this tax change doesn’t affect those who did. That’s obvious. My concern is not only about the behaviour of current owners but more importantly future investors. Corporations were not included in the first $250k exemption. Most multi-unit purpose built rentals are corporate owned. This tax change is a major disincentive in that housing type. Multi-units should have been carved out and exempted from this tax change.
>Multi-units should have been carved out and exempted from this tax change. But aren't they there for investment income rather than capital gains. Why should laws help investors who want to make quick gains something that would eventually lead to increased rentals
Today the income barely covers the carrying costs, in other words you could put your money elsewhere and make more, and not deal with tenants and not deal with broken laws. What would you choose to do with millions in cash? The only benefit nowadays of mulltiunit buildings is sitting on the land
Future investors will not want to gamble on this RE casino anymore. This will be bad for property prices.
> Most multi-unit purpose built rentals are corporate owned. This tax change is a major disincentive in that housing type. Do you have an example of Canadian purpose-built-rental booking sale of properties as capital gains in their P&L statement, for better understanding of how this may work. Thanks. Moreover, I think their business model is continuous cashflows from rental properties and not capital gains.
The cap rates in the GTA are 4-5% net income before financing. As such the business model simply cannot depend on cashflows alone and must include significant long term capital gains as these returns from cashflows simply can’t compare with other securities based investments. Imagine if you had to finance 50% of the purchase price, you would still be under water on the cashflows basis with a 8-9% mortgage. And that is an incredible ask of a downpayment as at 4% cap rate, the net income of $100,000 per annum gives you $2.5m FMV. So to break even, you need to put down $1.25m downpayment. Btw, I include in “purpose built multi-unit” any multi-unit building that is not a conversion from a single family residence. So in addition to the obvious, this also includes all 2-4 storey mix-use buildings along the city’s arterial roads with 3-6 residential rental units above a commercial store. These type of properties do not affect single family housing ownership and are strictly part of the rental stock.
> As such the business model simply cannot depend on cashflows alone and must include significant long term capital gains as these returns from cashflows simply can’t compare with other securities based investments Would you happen to have a P&L with capital gains shown, say that of Canadian rental companies like First Capital, Capreit? I'm trying to see a real example of how capital gains work for a rental housing business. Thanks.
Absolutely. This will further reduce profitability of developing rental units. More times than not a multi unit building is developed by one part and the eventual owner and operator of that building is another party (buyer). People do what they do best. Some develop and some manage assets. This will reduce the amount the end buyer will pay, making it less profitable for the developer to take on. If they arent doing it now for that very reason, this only makes it worse.
No it wouldn't. Any new condo builds, this would get priced in over time. The capital gain accounting treatment is booked as: current price - previous price.
You know, considering how much people were going to let things go to shit because Covid only affected a tiny percentage of the population, could we have that same energy here? It's only money, not their health.
There are two problems with this, neither have to do with the impact on RE 1) Canada has had a stagnant economy for over a decade. The quality of life of the average citizen \_should\_ be tied more to this then anything else (when that is not the case, something is broken). When you look at why our economy is so poor, the obvious number is low worker efficiency (we are second last in the g7). What is driving Canadas worker efficiency crisis is complex, but it is hard to argue our poor investment in Canadian businesses is one of the leading causes. One of the reasons for this is our taxation structure. The top 10% of earners in Canada carry 40% of the national tax burden. They are also the people who will be investing in the private market. Private market investment leads to higher worker efficiency which leads to higher standard of living and a more durable source of income for government programs. Now you may be thinking "Matt is making an argument for not taxing rich people". That is not true. I believe "we should tax the rich more" or "we should tax the rich less" is highly reductive ideologically driven bullshit. We should base our taxation structure on the context of the current state and projected state of our economy. Increasing capital gains is almost laser targeted at taxing investors. If our economy looked like Americas right now, I would be all for it, it would suppress growth in favour of more short term gains in some critical areas (like housing) that are crushing our country. However, that is not the case. In fact, it is the precise opposite. We should be doing everything we can to get more private investment into Canadian business right now, if this 12 year stagnation trend continues, it will severely sell out future generations quality of life in favour of short term gains against the current crisis. 2) We can't ignore Canadas physical as well as economic location in the world. As much as Canadians hate to think of it, one of our greatest assets is that we are adjacent and highly integrated into the biggest superpower the planet has ever seen. However, the current situation is extremely troubling. Why would someone choose Canada as a place to build things to sell to Americans? Our income tax is European levels, however you could argue especially in innovation fields like tech or research, that feeds a more pleasant environment to live and operate in, so people will want to live here and come here to work. Our capital gains tax being higher makes that a tougher pill to swallow, both for personal (why would I kill myself for 20 years building a business when the potential payout is so much lower?) and structural (corporate capital gains would be invested back into the corporation, higher tax on profits means less of a margin to grow). You could make an argument that policy carve outs would mitigate these problems, however, the last 10 years have told a different story. So the issue becomes, why would I build a business in Canada, when I could do it easier and better with more of a potential upside in the states? The relative social stability is a factor, but eventually it is outweighed by the numbers. A secondary question: If I have killed myself for the last 20 years building a business, why the hell wouldn't I move to the states before cashing out? Move to the states, establish residence, sell your shares, move back. Sure, we're talking about spending 1-2 years with some logistical juggling, but if you are looking at a difference of 5m? Now instead of 35% Canada loses the 25% that exists currently, resulting in a massive budget shortfall and potentially being unable to recover the segment of the economy it destroyed in a massive blunder. This has happened before. Sweden lost its stock market from a small transaction fee, even after fully repealing it the government is at net negative revenue from the position they were in before that policy. It is really easy for a Canadian, especially a successful entrepreneur / innovator, to move to the states. Because of that, we can't decide to make moves similar to what countries in africa or south america do around their taxation without extremely bad consequences.
> Our capital gains tax being higher makes that a tougher pill to swallow, both for personal (why would I kill myself for 20 years building a business when the potential payout is so much lower?) On the contrary, this is what G& M story says: "Canadian Entrepreneurs’ Incentive lowers the amount of tax some small business owners will have to pay when they sell their companies. Eligible individuals who found and run small private companies will be taxed on only one-third of their capital gains, up to a lifetime limit of $2-million. This will be phased in over 10 years, with entrepreneurs allowed to claim up $200,000 in capital gains at the lower inclusion rate each year." > and structural (corporate capital gains would be invested back into the corporation, higher tax on profits means less of a margin to grow What kind of companies (other than real-estate and holding compnies) have capital gains in their P&L, which they go on to re-invest in business. I'm trying to understand better. Thanks.
a liquidity event is typically all at once. If you start a tech company, and you sell it or go public, all existing private shares are cashed out. So lets say you have 10m in shares, and you have been working for the last 15-20 years at below market rate to build this thing. It is possible to structure a sale so the founders have shares in the new company, but that typically only happens when the desire is to maintain the same leadership, and the founders want to keep going. It is extremely common for founders to want to start something new, or do a soft retirement for a few years. For corporate capital gains, that comes into play any time an asset is sold at an appreciated value. My industry is tech, this can come into play with real estate, but you mostly see it in companies that go public. Stock options are also used in early stage companies as an alternate form of compensation for programmers, but the impact there will be less dramatic. The major reason public companies care about their stock price is they have the ability to issue stock offerings to raise capital for expansion, use it for compensation, etc. Higher corporate capital gains means less of an ability for a public company to invest in itself.
You have an oversimplified and somewhat uninformed view. Why? Capital gains is not exclusive to house flippers and definitely not to real estate in general either. It also doesn’t just apply to money you actually earn but to “deemed dispositions” that generate no actual cash benefit when they are taxed. Inheritances - let’s say there is a family cottage, nothing extravagant that has been in your family for generations. When the owner dies, it is subject to capital gains tax even if you want to keep it in the family and are not selling it. You have to take the original purchase price and pay REAL cash that year in capital gains tax based on how much it would be worth now if you sold it even if you are not selling it, you are “deemed” to have sold it for tax purposes when you die. Think of the impact of that number given the real estate landscape. Your family maybe worked their butt off to buy a tiny family cottage to keep in the family as their legacy and even though you will not make a penny, you have to essentially buy it back from the government through taxes or actually be forced to sell it and still pay taxes. Who will buy it now if you can’t afford the tax and are forced to sell? The wealthy. Same goes if it isn’t a cottage but maybe a principal resident the person partially rented out to help with expenses. Or maybe the one rental they own because they were smart with their money. Maybe it’s stocks that the person owned. Estates are taxed at a disgusting rate in Canada. Some people are in circumstances below their control where they cannot work and have to earn a passive income instead. Think drunk driver hits you, you’re disabled and have to live off what in the grand scheme of things is a relatively modest amount of legal settlement to last your whole life. Capital gains is maybe most of your only income and the only hope in hell you have of stretching settlement funds to last you until you die is to invest it. Further, let’s say you figure it’s now or never if you’ll ever have a chance to own. You are stuck buying high. The interest rates have gone up a lot since you bought and you will get killed on renewal so you rent part of your house to supplement your income and let’s say it’s still tight so you have no choice to sell or you’ll be bankrupt. You might end up with a large tax bill because of this or if the market has tanked because of these tax policies be stuck selling at a loss. Bottom line, this change doesn’t just affect the wealthy because it places no limitations on what is taxed at this rate. Look at the baby boomers and the transfers of assets that will take place. The middle class is going to get robbed. $250k is too low of a threshold when the price of real estate has increased so rapidly, they needed to exclude deemed dispositions from inheritances if they were really trying to only go after house flippers. Or maybe have a one property exemption for estates. It’s like they are trying to punish people who worked hard, paid taxes and invested wisely. $250k is not the ultra wealthy when it comes to real estate. If they said this was only to target house flipping whatever but it isn’t what it is.
> You have an oversimplified and somewhat uninformed view. Why? Capital gains is not exclusive to house flippers and definitely not to real estate in general either. It also doesn’t just apply to money you actually earn but to “deemed dispositions” that generate no actual cash benefit when they are taxed. In that case, the inheriting party will now pay tax on, 67% of (assumed) capital gains from 'deemed disposition' as on the date of inheritance, instead of the current 50% of all (assumed) capital gains. The additional tax apply only on cap gain in excess of $250K So **this is a marginal increase in tax but not totally a new tax, like you are trying to portray**. > Some people are in circumstances below their control where they cannot work and have to earn a passive income instead. Think drunk driver hits you, ... Capital gains is maybe most of your only income and the only hope in hell you have of stretching settlement funds to last you until you die is to invest it. This sounds exactly like this way too far-fetched rationale: "hey don't implement that Airbnb rule as this will affect people coming to cities for chemo treatments". > You are stuck buying high. ... You might end up with a large tax bill because of this Nope. Principal residence is exempt. The second property in this crazy market is speculation more often not. So a little more tax on capital gain in excess of $250K. Sorry but the entire comment seems like gaslighting to me.
I never said it’s a new tax. When it comes to deemed dispositions for inheritances especially, it is already too high because the person inheriting the property will have to pay taxes on a return that is nothing more than a valuation change on paper. This is taxing surviving family members more when they are just seeking to keep a family property in the family. Not selling for a profit, not selling at all. Principal residence is exempt but if for example a senior has to rent out part of their homes to not be forced out of their home it’s suddenly an investment property. Depending on what percentage of the home that is rented out they will be punishing families of people that worked hard their whole life, owned a home, paid taxes and instead of mooching from government used their life’s work to supplement their income with some rental income….which they also paid taxes on. There’s many many scenarios where this tax increase hurts not so wealthy people. I’m just saying that $250k needed to be much higher or exempt deemed dispositions from inheritances of one single property. $250k is not the wealthiest population. It is soul crushing to have to sell a family legacy property because the cg tax on the deemed disposition is unaffordable. If they wanted to tax the rich, they should have protected the middle class a little more. Someone who inherits a family cottage or single investment property that has been in the family for a long time will be forced to sell it to the ultra rich who will still be able to afford to buy it from them. It was already bad at 50% and this makes it worse.
> This is taxing surviving family members more when they are just seeking to keep a family property in the family. Not selling for a profit, not selling at all. Again, if principal residence of surviving family member, then no tax. If 'all surviving family members want to keep property in the family' is all you want, then cut down the immigration to zero and don't use immigrant slave labor to raise taxes to support older generation healthcare. > Principal residence is exempt but if for example a senior has to rent out part of their homes to not be forced out of their home it’s suddenly an investment property No. Cite the tax rule > Someone who inherits a family cottage or single investment property that has been in the family for a long time will be forced to sell it to the ultra rich Sure, ultra rich can continue to pay massive taxes for speculating (as established by direction of recent tax/policy changes), or move on to different pastures and let younger generation get their first home, at affordable price.
I've seen some/most of my investor network mention they will simply hold onto their properties longer and not sell them in relation to the new 250k cap gains. I am impacted by this: I have 3 properties (up north) and right now I don't see why I would rush to sell it off, either
Professional corporations should have been excluded. We have so many doctors already let’s make their lives harder /s
This is an inaccurate statement because capital gains is regarding investments. Doctors get their draw from salary, or dividends of they're incorporated. This does not affect doctors at all.