Some Canadians who own a secondary home or cottage are considering whether to sell their property before June 25 when the capital gains tax will increase or allow a family member to inherit the property.
To make Canada’s system “more fair,” Finance Minister Chrystia Freeland proposed an increase in taxes on capital gains in the 2024 federal budget last week, something that she notes would likely affect the wealthiest 0.13 per cent of the population with an average income of $1.42 million.
Capital gains on a property occur when someone sells—or gifts—their property for more than they bought it. Right now, Canadians are taxed on 50 per cent of that capital gain. As of June 25, the new inclusion rate (the portion of capital gains on which tax is paid) will be two-thirds of all capital gains above $250,000.
To put it in perspective—if an individual sells their cottage for $900,000 and makes a profit of $800,000, after the tax increase is implemented, they will be taxed on 50 per cent of the first $250,000 (about $125,000), and two-thirds of the remaining $550,000 (amounting to $366,666). The total taxable amount would be $491,666, or an increase of about 23 per cent.
“This tax change will have a devastating effect on families’ ability to keep the next generation in the cottage, which could have a profound cultural impact on our heritage and way of life as Canadians,” Lesley Lavender, CEO of the Federation of Ontario Cottagers’ Association, said in an interview with the Toronto Star.
“It’s crucial that any tax measures consider the unique circumstances of cottage owners and preserve their ability to maintain these treasured properties within their families.”
People with less than $250,000 in capital gains from the sale of cottages, investment properties, or stocks beyond the limits of tax-sheltered savings vehicles will continue to benefit from the current 50 per cent inclusion rate.
John Fincham, from RE/MAX Parry Sound-Muskoka Realty Ltd., told BNN Bloomberg that people are trying to beat the June 25 timeline, noting that in the next six to eight weeks we’ll see more of an uptick.
“We have seen a lot of new listings since the announcement, with more and more coming online every day,” he told the outlet in an interview, highlighting that the changes will impact real estate transactions as well as estate planning.
“I am getting a lot of calls, mostly from people trying to keep [cottages] in the family,” he said. “Multigenerational cottages are the biggest challenge…there is a lot of exposure from a capital gains perspective.”
Fincham advised that families re-evaluate their plans for handing down their cottages, by getting valuations done now and taking the numbers to their accountant.
