No spike in cottage, investment property sales as new capital gains rules take effect

Changes to the capital gains inclusion rate take effect today and while some real estate experts say the changes are causing anxiety within the industry, a leading real estate association says it hasn't seen a bump in sales of secondary residences.

As of today, the inclusion rate the taxable percentage goes from 50 to 66 per cent on capital gains above $250,000 per year for individuals, and on all capital gains realized by corporations and trusts.

When you sell an asset for a higher price than its original value, the profit is called a capital gain.It could be a cottage, an investment property, a stock or a mutual fund. In Canada, the capital gains tax is not applied to sales of primary residences.

People who own these assets had more than two months after the change was announced to sell their assets before ittook effect. But the Canadian Real Estate Association (CREA) says there has not been a significant bump in housingsales.

"We haven't noticed anything notable on the sales side at this time," said CREA spokesperson Pierre Leduc.

He said the association did notice a bump in multi-family property listings after the budget was tabled but added "we suspect a number of them will be taken off the market after (Monday)."

Mark Pedlar, arealtor who works in the resort town ofGrand Bend, Ont., saidhis clients are worried about the change but other market issues are affecting sales.

"There was an increase in listing this yearbut the capital gains increase was less of a factor, I think, for people selling than it may be hyped up to be," he said.

"The interest rates, mortgage renewals, short term rental regulations and market trends have been more of a factor for the increased inventory."

Pedlar said cottage owners who want to pass their property down to younger family members are the ones most affected by the change.

"It's hard to part with a family cottage, so they will pay the tax down the road when it's time to sell," he said.

WATCH: Politicians make conflicting claims about capital gains

Whos telling the truth about the capital gains tax? | About That

3 months ago

Duration 15:07

Canada's capital gains tax increase comes into effect on June 25. Andrew Chang breaks down some misleading claims about the changes coming from both sides of the political aisle and explains who is likely to pay the new tax, how much and how often. Does it really just hit the ultra-rich?

CBC News spoke with two other realtors who reported fielding many questions about the changes to the capital gains inclusion rate. They said a number of other factors, including interest rates and Ontario's foreign buyers tax, have slowed sales on cottages and investment properties butthe capital gains changes are making some property owners anxious.

"We definitely had a flood of calls from consumers, but as soon as people started to understand how much time and effort it would've taken to get their property for sale, sold and closedby the deadline, the math didn't make sense for most people," said Re/Max Canada president Christopher Alexander.

Tax changes a matter of fairness: finance minister

Finance Minister Chrystia Freelandhas said that only the richest will feel the effects of the change she estimatesonly 0.13 per centof Canadians will end up paying more. She also said the changeswill raise$19 billion for the federal government money for social programs and housing programs aimed at the middle class.

"The fair way to finance them is with tax fairness. That's what we're doing," she said.

Freeland'schanges to capital gainsalso includeacarve-outfor entrepreneurs.

Someeconomists, including the University of Calgary's Jack Mintz, say the federal government is underestimating how many people will be affected by the change to the inclusion rate.

He said his analysis projects that closer to 1.25 million Canadians will end up being affected, not the 40,000 people the government has estimated.

The changes to the inclusion rate created a "rush to close transactions" on corporate deals, saidlawyerAudrey DeMarsico. She added most of those deals were already in the works when the capital gains changes wereannounced.

"Anything that was already a proposed deal and negotiation that was ongoing, there is that impetus to close before the changes occur on the 25th," said DeMarsico, a business law, estates and intellectual property lawyer at Nelligan O'Brien Payne LLP in Ottawa.

She said the changes affect a wide range of businesses, including real estate investment operations, advertising agenciesand any business that was considering an ownership change.

"Anyone who's been in talks for that kind of change had a sudden deadline imposed on budget day," she said.

Several economists and industry leaders told CBC News they'd heard anecdotesabout a spike in corporate restructuring activities before the changes went through, but there's no datato confirm it.

Benjamin Bergen, president of the Council of Canadian Innovators, said he received 1,800 inquiries about the changes when they were announced. He said he's heard anecdotes aboutsome businessesmoving to other countries to avoid the increase.

"People are not exiting in a ruckus. They're quietly just doing it," he said.

Lingering concerns about growth

Multiple industry groups, including those representing farmers and the tech sector, have claimed that changes to the inclusion rate will discourage investment. Conservative Leader Pierre Poilievre came out against the change, calling it "job-killing."

In a statement, Office of the Leader of the Official Opposition spokesperson Sam Lilly accused the federal government of "hiking taxes on small business while Canadians' paycheques are shrinking."

Bergen is calling on the federal government to reverse course, warning that it will push capital and investment to the United States.

The federal government insiststhe changes won't hurt Canada's business competitiveness. It points outthat corporations in most other countries, including the United States, pay corporate income tax on their capital gains.

As well, a recent International Monetary Fund report on Canada says "the increase in the capital gains inclusion rate improves the tax system's neutrality with respect to different forms of capital income and is likely to have no significant impact on investment or productivity growth."