Upcoming changes to what can be taxed as capital gains is spurring a flurry of property sales, according to real estate agents and others in the housing market.
“We are closing five transactions ahead of June 25. The speed has been unprecedented,” said Mark Goodman, principal at Goodman Commercial Inc., which specializes in sales of multi-family apartments, commercial properties, development sites and land.
One of the five deals he closed is for a 43-suite, 10-storey concrete rental tower in the West End with panoramic ocean and mountain views that was listed at $22 million. Another is a Kits Point waterfront development site with beach access that was listed at $14.5 million.
Usually, there is a gap in time from when a property goes under contract to when a sale is completed so buyers can do their due diligence or get financing.
Instead, there has been a “turbo-charge” to getting these deals done, said Goodman, adding that buyers and sellers have both been benefiting.
The new measures, which were announced in the 2024 federal budget, will mean changes for businesses and individuals when it comes to paying taxes on their capital gains.
A capital gain is the difference between what is paid for an asset, be it an apartment building, condo unit or stocks, and its sale price.
Currently, 50 per cent of capital gains are taxable. After June 25, the so-called capital gains tax inclusion rate for corporations and trusts will move from 50 per cent to 66.7 per cent, or from one-half to two-thirds, of capital gains that are taxable.
For individuals who have gains that are over $250,000, the rate will move from 50 per cent to 66.7 per cent. For individuals with gains that are under $250,000, the rate will stay the same at 50 per cent.
Every sale is different, but in order to hit the June 25 deadline, some sellers have been more flexible with conditions and pricing, knowing that they will make up the difference by reducing their exposure to the changes in capital gains taxes.
One of the five sales was unconditional, according to Goodman.
“The sellers were very happy to beat the [June 25] date,” said Goodman.
Goodman said lawyers are drawing up closing papers that will be signed in a few days for the fifth deal. Including this sale, his company will have done a total of 10 transactions this year with five he attributes to being conducted ahead of June 25 specifically because of the incoming tax changes.
All five of these were long-held properties that have been in different families and owners for decades.
Laurinder Keenan is seeing another mini-trend. For almost 20 years she has run a business that does regular tenant checks on investment properties that are long-term rentals to make sure they aren’t being used for meth labs or grow-ops and comply with insurance requirements.
Over that long period, the number of properties in her stable has fluctuated between 400 to 600. In the last four months, however, she has been losing a larger number than normal as owners sell properties in order to avoid, she thinks, the implications of the changes to capital gains taxes on June 25.
“It’s been a drop of about 20 per cent. It’s the biggest I have ever had,” said Keenan. She thinks that other small business owners who offer services to investors such as property managers are likely seeing a similar situation.
“If you bought a one-bedroom place 20 years ago for $250,000, it would have gone up significantly in value,” said Keenan, referencing the potential capital gains exposure for some property owners.
These aren’t owners who are selling their units because of the recent regulations for short-term rentals, she said: “These are long-term rentals that have been around for a long, long time.”
