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Prime Minister Justin Trudeau's resignation and the prorogation of Parliament have introduced significant uncertainty regarding proposed changes to Canada's capital gains tax, causing concern among commercial real estate investors.
Prime Minister Justin Trudeau attends a 2019 Town Hall. Photo by Stacey Newman.
In the 2024 federal budget, the government proposed increasing the capital gains inclusion rate from 50 per cent to 66.67 per cent for corporations and trusts, and for individuals on annual gains exceeding $250,000. These changes were scheduled to take effect on June 25, 2024.
However, the legislative process has been delayed. A notice of ways and means motion was introduced on June 10, 2024, but the amendment has yet to be formally enacted into law. The prorogation of Parliament further postpones any legislative progress, leaving the proposed tax changes in legal limbo.
This uncertainty has several potential implications for the commercial real estate sector. Anticipation of higher capital gains taxes prompted a surge in property sales before the proposed implementation date.
In June 2024, Colliers Canada reported closing 156 deals, a 26 per cent increase from June 2023, marking the highest number of June transactions in a decade. Adam Jacobs, national head of research at Colliers, attributed this spike directly to the impending tax changes. "Everyone had an opportunity to do a deal at the old capital gains tax so I think that was what we saw people do: 'I think I'll just cash out now and do the deal before I have to deal with more taxes in the future,'" Jacobs said.
The delay in implementing the new tax rates has created a complex environment for investors. Some may have expedited sales to avoid higher taxes, potentially accepting lower offers in a competitive market. Now, with the changes stalled, those decisions may seem premature, adding to market volatility.
Industry experts caution that prolonged uncertainty could lead to decreased investment in commercial real estate, as stakeholders await clear tax policies. This hesitation may slow market activity and impact property valuations, affecting overall economic growth within the sector.
Parliament will reconvene on March 24, 2025, but the future of the proposed capital gains tax changes remains uncertain.
At STAY, we will continue to monitor legislative developments closely and consult with tax professionals to navigate this evolving landscape effectively.
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