New Capital Gains Tax: What Real Estate Investors Need To Know

The Government of Canada announced new capital gains tax rules in the 2024 federal budget, released in April. Under these new laws, the capital gains inclusion rate has been increased to two-thirds for corporations, trusts, and individuals whose capital gains exceed $250,000 in a given year.

Simply put, real estate investors who made sound investments in previous years may be subject to a higher tax rate on their capital gains. The original tax rate of 50% will increase to 66.67% on June 25, 2024, raising important questions for investors, particularly those considering investing in or diversifying their portfolios with multiple condos.

Given the new capital gains tax rules, it's more important than ever for investors to engage in disposition planning. By planning strategically, savvy investors will be better poised to capitalise on the best opportunities while managing their tax liability over time.

PERSON VS. INC.

The new tax rules make it incumbent upon an investor to decide how to approach real estate purchase decisions. While using pre-tax dollars to purchase a property through a corporation has benefits, investors now have to decide whether they’re better off purchasing personally or through a corporation. Considerations include: overall investment goals, how much capital expenditure is made, and expected future gains.

We encourage all investors to reach out to a tax accountant and a member of our investment team to work through multiple investment scenarios.

UNIQUE OPPORTUNITIES FOR CONDO INVESTORS

Fortunately, for condominium real estate investors, there are unique opportunities to keep a larger portion of your investment and continue to realise gains.

Thanks to their affordability, lower maintenance responsibilities, and potential to generate rental income, investing in condos has taken on a renewed importance as investors seek to optimise their portfolios and mitigate the effect of higher inclusion rates on their property investments.

Condo investments can be a strategic move for investors aiming to manage the implications of the federal budget changes, especially if they're positioned in high-demand locations, are well-built, and designed to accommodate modern living preferences. By choosing condos that are highly anticipated or located in attractive areas, investors can expect a higher potential for appreciation and, therefore, a better long-term return on investment.

If you want to learn more, our investment team is here to help.

–CC

The preceding is the opinion of our real estate team and is not to be considered financial, investment, or tax advice.