Canada’s rental housing providers now face a new challenge because of the October 21 election, and the campaign promise of the Liberal Party and the NDP.

Currently 50% of capital gains are included in income for tax purposes. (The other 50% are not subject to income tax.) Fifty per cent is the capital gains inclusion rate (“CGIR”). That rate has applied since 1972, except for the period from 1988 to 2000 when the CGIR varied between 66.67% and 75%.

In their election platform in September, the Liberals promised “a comprehensive review of government spending and tax expenditures to ensure that wealthy Canadians do not benefit from unfair tax breaks.” That effectively promises a consultation of possible revisions to the capital gains tax regime (and other tax measures).

A capital gain occurs when a property is sold for more than it was purchased for. The difference (less the costs of disposition) is the amount of the capital gain. No adjustment is made for inflation.

TaxpayerAB (currently)B (with a 75% CGIR)
Rental income$200,000$100,000$100,000
Capital gain$0$200,000$200,000
CGIRn/a50%75%
Capital gain included in income$0$100,000$150,000
Total income for tax purposes$200,000$200,000$250,000
Federal taxes payable$43,750$43,750$59,830
Provincial taxes (approx.)$21,870$21,870$29,920
Total taxes payable$65,620$65,620$89,750

The risk of an increase in the CGIR being decided in the next few months is very small. CFAA has taken steps to mitigate that risk by communicating with our key contacts in the Finance Department and the Office of the Minister responsible for housing.

The risk of an increase being included in Budget 2020 without consultation is minor (say 10%). CFAA will communicate with our key contacts and others to find out whether an increase in the CGIR is being contemplated for the budget, and present the case against such an increase.

The most likely path for a possible increase in the CGIR would be a consultation in keeping the Liberals election promise to review tax expenditures, which would include the CGIR. That could result in an increase in the CGIR at January 1, 2021 or in Budget 2021, or subsequently.

For several reasons, maintaining the status quo is probably the best result to seek. However, it would be advantageous for the rental industry to have a good Plan B, in case it turns out that the government insists on making a change.

To help decide what to consider for a Plan B, CFAA will perform or commission some academic research and an international comparison, and form a working group. Once options have been refined and given at least a preliminary review, we will consult with CFAA’s members, both association members, and direct landlord members.

We plan to schedule a retreat in Toronto to review the issues between March 24 and April 1. At CFAA’s Capital Gains Tax Retreat, we will discuss the following issues:

  • Introducing inflation adjustment as a part of a new capital gains tax system
  • Lower rates for longer hold periods (with higher rates for shorter hold periods, such as one year or less)
  • Different rates for different asset classes (with lower rates for rental housing)
  • Other ideas for a “Plan B”
  • Whether the current system is the rental housing industry’s preferred result.

Fighting higher capital gains taxes

Now that the rental housing industry faces the risk of higher taxes on capital gains, it is more critical
than ever that CFAA be properly resourced.

  • come together as an industry with a consistent message
  • be ready with the arguments and evidence that higher capital gains taxes are bad for the economy, bad for workers’ incomes and bad for rental affordability
  • present that evidence, and advance those arguments, with the right people at the right times.

  • consult more with rental housing providers of all types, sizes and locations
  • commission more academic research to strengthen the arguments
  • contribute to or lead a coalition of like-minded associations
  • meet more government decision makers, and meet the key decision makers more often.

  • prompt notice of new developments on capital gains tax changes
  • templates to assess the impact of possible changes on your holdings
  • all of CFAA’s newsletters about other tax issues and housing policies, information and issues.

For more information about the CFAA direct landlord membership program, visit the Membership page or email admin@cfaa-fcapi.org.