Let’s discuss a big shift in Canada's real estate landscape. I'm talking about the new capital gains tax increase. Whether you're a Whistler homeowner or eyeing your first Whistler property investment, understanding this change is critial.
Not into reading? No worries! Check out the full scoop in this YouTube video
What does this actually mean for you?
Let’s start with the basics. The Canadian government has revised the capital gains tax, effective June 25, 2024. For individuals, gains over $250,000 now face a 66% inclusion rate—up from 50%. Corporations have a flat 66% rate on all gains. So, what does this actually mean for the market and for you personally?
Consider this: You’re an investor thinking about selling a Whistler property you bought ten years ago, which has appreciated significantly. Previously, the tax hit might have been manageable, but now, the increased tax could take a serious bite out of your profit. So, what do you do? Let's crunch the numbers.
Let’s say you stand to make a $600,000 gain on a sale. Under the old rules, you’d pay taxes on $300,000 of that gain. With the new rules, you’re taxed on $396,000 of it. That’s almost $100,000 more of your gain being taxed—and at your highest marginal rate. Those extra capital gains taxes are significant!
This could lead investors to think twice about selling now. It has the potential to lead to a drop in available properties, tightening supply further and potentially driving prices up. Not really what the government is looking for.
"It’s a double-edged sword. On the one hand, it increases government revenue. On the other, it could stall the turnover rate in the housing market."
What does this mean for the overall Whistler real estate market?
So, what does this mean for the overall real estate market in Whistler or across Canada? Fewer properties for sale mean less choice for buyers, potentially higher prices, and a tougher market for first-time buyers. But also, this tax isn't just about individual homeowners.
Think about larger investors and corporations. Many of these players often hold multiple properties and are crucial for rental markets. The higher tax burden could discourage them from selling, impacting rental availability and pricing. And remember, this isn’t just about residential real estate. Commercial properties, large-scale developments... they’re all affected.
And let’s not forget, the Canadian government has ambitious housing targets to meet. They're aiming to stimulate construction and improve affordability. Their plan lays out a wildly unattainable strategy to build 3.87 million new homes by 2031. That works out to 522,000 homes per year starting now until 2031. The most homes Canada ever built in a single year was back in 1974, with 257,000 homes. In recent years, the peak was 222,000 in 2021, and that number DECLINED in 2022. We don’t have the 2023 numbers yet, but suddenly, we're expected to DOUBLE that capacity when it's never been done before.
Interestingly, the government expects this measure would increase federal revenues by $19.4 billion over five years starting in 2024-25 which happens to be the exact amount needed to fund the construction of those 3.87 million new homes by 2031. But get this… if private developers and investors pull back due to the capital gains tax, meeting these targets could become even more impossible.
Is the government banking on everyone panic selling before the June 25th deadline? Remember, the government doesn’t get any additional revenue if investors and corporations DON’T sell. This leads me to question whether the tax policy was simply designed to trigger a short-term surge in property sales. But what happens after that surge? Will the market stagnate, and will construction goals just remain as unattainable ambitions?
These are big questions that demand careful consideration if you’re investing in Whistler or elsewhere in Canada. The interplay between tax policy and housing strategy isn't just about numbers; it's about real impacts on real people's lives and the future landscape of our communities.
I’ve helped over 1,000 buyers and sellers in the Whistler real estate market over the past 25 years so I hope some of my market knowledge in this blogpost has helped you too.
