It appears that the government has taken more steps to continue their battle against the housing market. In a move that has shaken property investors and small business owners, the federal government recently announced that they were planning to increase the capital gains tax rate from 50% to 67% (rounded up from 66.7% for ease of writing) for corporations with any gain and for individuals with gains over $250,000.
However, when you think of “corporations” it’s important to note that this does not necessarily refer to massive conglomerates with large holdings…a great number of mom and pop property investors use corporate tools like holding companies to tax shelter their investments for retirement income or savings. The capital gains tax will also apply to other businesses small and large which will have a detrimental effect on business growth and development which could then further effect the economy. This could mean that the profits that a great many Canadians relied on for their children’s education or their personal retirement planning just took a massive hit. Additionally, as this new increase applies to any secondary property, families with cottages or vacation homes that have been in the family for decades will now have to take that into consideration.
Keep in mind that this does not translate to a direct “payment” of 67% of the gain to the government. What is means is that 67% of the gain is applied to the individual or corporation’s taxable income for the calendar year in which the property is sold. Depending on the tax bracket of the Seller, this could be quite costly.
With interest rates at levels not seen since 2008 and attacks on rental owners (Short term rentals like AirBnb are also being outlawed in the majority of BC cities) this could spell some tremulous times for homeowners. As investment owners decide to liquidate their properties, more inventory will mean more choice for buyers which will force sellers to become more competitive with their pricing. Let’s hope that Canada’s immigration policy can keep up by bringing enough potential property owners into town to keep values relatively stable because if no one is buying…no one is selling.