How is the change going to come? capital gains Some real estate experts say the taxes are causing some “concern” in Canada’s cottage country, as owners worry about whether they should rush to sell before offers take effect. 2024 federal budget Get applied this summer.
Budget 2024 presented by the Liberal government two weeks ago included a Change in inclusion rate for certain capital gainsWhich is the net profit made from the sale of an asset such as a stock or investment property.
The proposed changes, which would take effect June 25, 2024, would increase the inclusion rate for capital gains to 66.7 percent for individuals who receive more than $250,000 in annual capital gains. Any profits worth less than that bar will continue to face the current inclusion rate of 50 percent.
While principal residences remain exempt from capital gains taxes, secondary properties such as investment units or cottages that are not a person’s primary home face inclusion rates when sold.
According to experts who spoke to Global News, owners of some Canadian recreational properties are concerned about how the new changes could impact their family cottages.
Christopher Alexander, president of Re/Max Canada, says agents in the recreational markets across the brokerage’s national network are getting a lot of inquiries about the impact of the proposed capital gains taxes on cottage properties.
For anyone trying to sell their property and close the transaction before the June 25 deadline, Alexander told Global News that listings should be up by the end of this week.
This is also the time of year when many cottage owners are in clean-up mode after winter, clearing out their property, removing fallen trees and getting ready for the summer season.
Alexander says the timing of the Budget release means there will be “immense pressure and stress” on sellers to clean up a property and list it to facilitate a quick sale.
How will the capital gains changes affect cottage owners?
Broker Mark Pedler of Re/Max Bluewater Realty on the shores of Lake Huron in Grand Bend, Ontario, says his team has been meeting with clients for the past two weeks who are wondering whether they should list a property now and try. Should do. Beat the new tax rules.
“There’s a lot of chatter. Many people are worried about this. It’s probably going to have a bigger impact on them than a lot of people think,” he told Global News.
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But Pedlar advises anyone who is thinking about selling a cottage in the next few months should take the time to sit down with an accountant to find out how much the capital gains changes will affect their sale – if at all. Too.
For a property seller to be paid high capital gains on the sale of their cottage, they will need to make a net profit on the sale of more than $250,000. In the case of joint owners, like a married couple, that income would have to top $500,000 to face higher capital gains taxes, notes Pedler.
Pedlar says anyone who has bought a cottage in the last five or so years won’t see the same appreciation if they’re thinking of selling today. He gave an example saying these changes are more likely to impact the individual owner, someone who might be an elderly person who bought a cottage at a very cheap price 40 years ago and sells it for $1 million today.
Both Alexander and Pedlar say that anyone trying to make a quick sale in today’s cottage market may have to discount the price to grease the wheels.
Alexander says anyone weighing the timing of a pending sale needs to assess whether they’ll save more by compromising on price to beat capital gains taxes, or by keeping the property on the market longer. Will get the evaluation that he had in mind.
“You probably have to price aggressively enough that it offsets any potential losses or additional taxes you might have to pay,” he says.
At the end of the day, Pedlar says, “nobody likes to pay more tax,” but that is unlikely to lead to a surge in listings. He’s telling clients that if they can sell quickly at the price they want before the June 25 date, that’s great, but he doesn’t think it fundamentally changes the equation for most sellers in the market today. Will change.
“There are some people we’ve sat down with and said, ‘Oh, you know, I have to sell the cottage now because we’re going to be hit even more by taxes on capital gains,'” says Pedler.
“But as soon as you start doing the math for them and start talking to them about it, it’s like, ‘Okay, maybe it’s not as bad as it seems, or maybe it’s not as bad as it might be. Could.’ ,
Alexander makes an exception for cottage owners who want to get the wheels on the transaction as quickly as possible.
Anyone who owns a recreational property and is considering transferring ownership to the next generation will be encouraged to do so before June 25, as regardless of whether a deal is done for a nominal fee or without any cash changing hands , capital gains will be realized. The value of the property will be based on today’s market value when it was purchased.
Alexander says, “If you’re passing your cottage on to a family member, I would really encourage you to do so before the 25th, because it will mean a lot of extra expense if you don’t. “
Owners have tight inventory on cottage, Re/Max projects
On Tuesday, Re/Max released its 2024 Cottage Trends report, which estimated that nearly two-thirds (64 percent) of cottage owners surveyed plan to occupy their properties in 2024.
The survey, conducted by Leger in March ahead of the release of the 2024 federal budget in April, led Re/Max to predict that the recreational property market will not see a flood of new listings this year.
Despite pressure for capital gains tax changes, Alexander says he’s sticking to that forecast.
He says many Canadians view cottages less as investments and more as “second homes.” They argue that they are willing to hold on to their waterfront real estate despite financial difficulty in many cases.
“It’s really interesting how many people thought right out of the gate, ‘Oh my God, cottages are going to be the first domino to fall,’” Alexander says of the reaction to the capital gains changes.
Amid the ongoing shortage of inventory in cottage country, Re/Max is projecting a 6.8 percent increase in average sales prices in 2024.
For the first quarter of the year, nearly half of Ontario’s recreational markets (54 per cent) are seeing annual value declines, but Re/Max expects values to increase overall before the end of 2024. Most of the markets analyzed were in the Atlantic and Western Canada, with the report saying Canada was already seeing price increases in the first quarter of 2024.
Young families and couples are being cited as important drivers of activity in 59 per cent of recreational markets across Canada, according to Re/Max Realtors surveyed as part of the report.
That’s a change from six years ago, when retirees were the dominant demographic in 91 percent of markets, the report said.
Alexander says changing demographics are largely a legacy of the COVID-19 pandemic and the continuation of hybrid and remote work opportunities. He says young Canadians are seeing the leisure market as a viable place to call home, even if they have to commute to work two or three times a week.
According to Alexander, cottages are also gaining prominence as a first home purchase due to the relative size and affordability of properties in Canada’s larger cities.
He argues that the cottage market could benefit this year as increased interest rates will drive some potential buyers out of the most expensive housing markets.
“We know that many Canadians want to own real estate. They see the long-term benefits,” says Alexander. For many of them, this means exploring options outside the city limits, and Cottage Country is taking advantage of this.
wondering if A cottage is suitable for your first home, read global news home school seriesWhich teaches Canadians everything they need to know about buying a home that they didn’t learn in the classroom.
