The federal government says new changes to capital gains tax It will only affect the wealthy, but some real estate agents say they are hearing from “middle-class” cabin owners who fear they will have to sell before the rules come into effect on June 25.
“Most of the calls I get are from people who want to give up their homes instead of selling them, and they’re pretty upset right now. The properties have been in their families for years,” John Fincham, a broker with Re/Max Parry Sound Muskoka Reality, told CTV News Toronto.
After home prices hit record highs during the pandemic, they cooled as interest rates rose. Now, with the tax changes, Fincham expects prices to drop even further.
When the new capital gains rules come into effect on June 25, Fincham said some homeowners are worried about the extra amount they will have to pay the government when they sell their properties.
If a cabin was purchased for $250,000 and then sold for $750,000, under current tax rules, that would be a capital gain of $500,000. At 50 percent, the taxable capital gain would be $250,000.
However, starting June 25, 2024, that same cabin purchased for $250,000 and sold for $750,000 would have the first $250,000 of the capital gain taxed at 50 percent, for a total of $125,000. Plus an additional $250,000 taxed at 66.7%, which equals $166,750.
The taxable gain on that same cabin would increase from $250,000 to $291,750.
Some families have had cabins in their family for 50 years or more, so the capital gains taxes they may have to pay could run into hundreds of thousands of dollars.
“It doesn’t really matter if you plan to inherit them or want to sell them, it will cost them a lot of money either way and they (some cabin owners) are not necessarily rich people,” Fincham said.
Evelyn Jacks, president of Knowledge Bureau and author of 55 books on taxes, said, “This is a significant tax increase and it will affect a lot of people.”
Jacks said that while some cabin owners may consider trying to sell their properties to avoid paying additional capital gains before June 25, he said families should not rush into making such an important decision.
“Rather, I would say err on the side of proper planning, getting the family together and making sure the cabin goes to the right people in the family. These are all important considerations,” Jacks said.
A silver lining might be that if you’re thinking about buying a country house, Fincham believes prices could drop an extra five or ten per cent.
“I expect an increase in listings in the next month and a half and it will probably lead to price erosion, because there are already a lot of listings currently,” Fincham said.
Jacks recommends that cabin families get professional help with financial and tax advice before making any decisions, as there may be ways to transfer ownership or reduce the amount of taxes they must pay.