The Canadian government's recent budget announcement included a measure to increase the capital gains inclusion rate for corporations from 50% to 66.7%, effective June 25, 2024. This has sparked concerns of a potential surge in corporate asset sales before the deadline, which could impact the real estate market in Kelowna and other regions across Canada.
Why the Surge in Sales?
The increase in capital gains tax rate essentially means corporations will pay more tax on any profits they make from selling assets. To avoid paying these higher taxes, some corporations, particularly those with significant capital gains accrued, may be motivated to sell their assets before the June deadline. This could include investment properties, commercial buildings, and even vacant land.
Potential Impact on Real Estate
An increase in corporate asset sales could lead to a higher supply of properties on the market, potentially putting downward pressure on prices. This could be an opportunity for buyers looking to purchase real estate at a more competitive price. However, the exact impact will depend on several factors, including:
- Type of Property: Industrial and office space may see a bigger impact compared to residential properties.
- Location: Areas with a high concentration of corporate-owned properties could be more susceptible to price fluctuations.
- Overall Market Conditions: A strong seller's market might mitigate the downward pressure from increased supply.
Facts and Figures
Supplementary Information
The government's own analysis estimates this measure will result in an additional $4.945 billion in capital gains tax revenue in 2024-2025 (as shown in Table 1). This suggests they anticipate a significant increase in corporate asset sales before the June deadline. However, the windfall is expected to be short-lived, with corporate capital gains tax revenue projected to decrease by 2026-2027 (Table 1).
Revenue Impacts of Proposed Tax Measures
This table outlines the estimated changes in government revenue associated with various tax measures, including the capital gains inclusion rate increase.
- The measure is expected to generate a significant one-time increase in corporate capital gains tax revenue of $4.945 billion in 2024-2025.
- Conversely, by 2026-2027, the government projects a decrease of $385 million in corporate capital gains tax revenue compared to normal levels.
- This suggests corporations may strategically time asset sales to lock in lower capital gains taxes before the June deadline.
How to Prepare
For Potential Buyers
- Stay informed about market trends, particularly in areas with a high concentration of corporate-owned properties.
- Be prepared to act quickly on suitable properties that come on the market.
- Consider working with a qualified realtor who has experience navigating a shifting market.
For Sellers
- Understand the potential impact of increased corporate activity on your specific property type and location.
- Consult with a realtor to determine the best timing and strategy for listing your property.
While the potential for increased corporate activity exists, it's impossible to predict the exact impact on the real estate market. Market conditions can be influenced by various factors beyond corporate asset sales.
