Understanding the New Capital Gains Tax Regulations: What Home Buyers and Sellers in Vancouver Need to Know

by Taylor Ross

In Budget 2024, the federal government announced significant changes to capital gains taxation aimed at making Canada’s tax system fairer. Effective June 25, 2024, these changes will impact both individual taxpayers and corporations, particularly in the Vancouver real estate market. Here’s a comprehensive guide on what you need to know about these new regulations and how they may affect your real estate transactions.

Key Changes Effective June 25, 2024

Increased Inclusion Rate:

For individuals, the capital gains inclusion rate will increase from 50% to 66.67% for capital gains over $250,000 per year.
For corporations and most types of trusts, the inclusion rate for all capital gains will be 66.67%, with no threshold.

Lifetime Capital Gains Exemption:

The increased Lifetime Capital Gains Exemption ensures most middle-class entrepreneurs won’t pay more tax due to these changes.
The new Canadian Entrepreneurs’ Incentive encourages investment in capital-intensive and high-growth sectors.

What’s Not Changing

Principal Residence Exemption:

The principal residence exemption remains unchanged, ensuring that Canadians do not pay capital gains taxes when selling their primary home.

Capital Gains Averaging:

Capital gains cannot be averaged over multiple years to stay under the $250,000 annual threshold.

Splitting the $250,000 Annual Threshold:

Individuals cannot share their $250,000 annual threshold with corporations they own.

Exemptions for Specific Assets or Corporations:

No specific assets or corporations are exempt from the two-thirds inclusion rate, ensuring fairness across all sectors.

Time-Based Distinctions:

There are no special rules based on how long an asset is held. The same inclusion rate applies regardless of the asset type or holding period.

Impacts on Home Buyers and Sellers in Vancouver

For Home Buyers:

If you’re looking to buy a tenant-occupied property, be aware of the extended notice period and new compliance requirements.
Seek legal advice to understand your rights and options, particularly if tenants do not vacate as required.

For Home Sellers:

Plan ahead and provide adequate notice if the buyer requires vacant possession.
Utilize the new landlord web portal for issuing notices and be prepared for the extended notice period.
Consult legal experts to ensure compliance with the new regulations and protect your interests.

Navigating Capital Gains Tax in Real Estate

Realized vs. Unrealized Capital Gains:

A realized capital gain occurs when you sell an investment or real estate for more than you purchased it for.
You only pay tax on realized capital gains, not on unrealized gains (increases in value on paper).

Example Calculation:

If you sell an investment property in Vancouver for a $100,000 profit, you’ll be taxed on $50,000 of that gain under the previous rules. With the new rules, you’ll be taxed on $66,670 of that gain.
For a tax rate of 33%, the tax owed would be approximately $22,000.

Capital Gains Exemptions and Special Cases

Primary Residence:

If you’ve lived in the property and it’s deemed your primary residence, you’re generally exempt from paying capital gains tax.
Be cautious of frequent buying and selling, as it might be deemed business activity by the government.

Investment Properties:

If you convert a primary residence to a rental property, you need to appraise it at the time of conversion.
Any capital gain from the time of conversion to the sale will be taxable.

Legal Advice for Ongoing Transactions

For those currently involved in transactions with tenant-occupied properties, seeking legal advice is crucial. Legal counsel can help navigate the new regulations, ensure compliance, and safeguard all parties' interests.

Looking for a Vancouver Realtor?

If you’re looking to buy or sell a home in Vancouver and need expert guidance, contact me, Taylor Ross, a dedicated Vancouver Realtor. I can help you navigate these new regulations and ensure a smooth transaction. Let's work together to achieve your real estate goals.