Black Friday and the Capital Gains Inclusion Rate

-

We're experimenting with something fun - Black Friday fees. We'll also share a deep dive into Canada's capital gains inclusion rate over time.

November 24th, 2023

Read Time: 3 minutes

Today we'll make predictions about Canada's capital gains inclusion rate.

But first - here's something fun we're experimenting with:

Black Friday fees

Here's how it works.

For any listing proposal completed by our team from now until December 5th, we will cut our fees to a maximum of 1% of the purchase price when the property is sold.

(Disclaimer: listings must commence before January 31st, 2024)

This won't last long. You can request your Black Friday Proposal [here](mailto:dayma.itamunoala@colliers.com?subject=Re%3A%20Request%20Black%20Friday%20Proposal).

Now let's dive into the newsletter.

(did someone forward you this email? Sign up [here](http://www.onmultifamily.com)).

At the end of every year, real estate owners get concerned the capital gains inclusion rate will change.

The logic goes like this:

The Fed's spending a lot of money > it will need to increase revenue > wealthy Canadians are an easy target > they will increase the capital gains inclusion rate.

In some instances, multifamily owners cite this as the main driver for selling - wanting to pre-empt any changes in tax policy coming in the following year.

Refresher: Capital Gains Simplified

Capital gain is the profit made when an asset, like property, is sold for more than its purchase price. In Canada, the capital gains inclusion rate for corporations is 50%, meaning half of the capital gain is taxable.

For example, if a corporation buys a property for $10 million and sells it for $20 million, the capital gain is $10 million. With a 50% inclusion rate, $5 million of this gain is taxable. This amount is then taxed at the corporate tax rate (note this example does not account for depreciation, which would increase the taxable amount).

History of Capital Gains (Inclusion Rate)

To understand what might could happen. It's important to understand the history of the inclusion rate in Canada.

It was originally introduced in 1972 at 50%.

Then, increased to 66.67% in 1988 and further to 75% in 1990.

In 2000, the rate was reduced back to 50%, where it has remained since.

How Does Canada Compare to G7 Nations

Canada is among the least competitive. Here's how we stack up against other countries.

Canada: We see the fluctuations as discussed earlier, with the current rate at 50%.

USA: The rate has varied, with a decrease over time, currently standing at 20%.

UK: The rate increased initially and then decreased, currently at 20%.

France: Started from no capital gains tax in 1972 and gradually increased to 30%.

Germany: No capital gains tax until 2000, then a significant rise to 60%.

Italy: Fluctuated over the years, currently at 26%.

Japan: Similar to the USA, with a decrease over time to the current rate of 20%.

What You Should Care About:

Major tax changes, including those affecting capital gains, would typically be announced during the federal budget release. This is usually in the spring (February to April) but can vary.

Governments rarely apply tax changes retroactively, so if anything is to happen, you would have a few months to plan.

Our Assessment

Given Canada's current position relative to other G7 countries, I think it's unlikely Canada will make this change in 2024.

But, given this government's proclivity to demonize wealthy Canadians - it's a possibility. I'd estimate a 15% probability the Fed will raise the inclusion rate in 2024 given our current fiscal challenges.

---