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Should I Sell My Rental to Avoid the New Capital Gains Inclusion Rate?



The question I'm getting a lot at the moment is whether or not to sell an asset to avoid the increase in the Capital Gain inclusion rate.


Well, that depends so I'll break it down for you.


The first thing to know (and you can skip this paragraph if you already know this stuff) capital gain is the amount of money made on an investment over time. So, if you buy a rental condo for $100k (ha ha ha) and sell it for $200k the "capital gain" is $100k. Currently, as of April 2024, the capital gains tax is a tax on 50% of the capital gain (or $50k in this example) The proposed federal budget for 2024 will increase this from 50% to 66%. So, rather than $50k it's now $66k. That number is added to your income for the year the asset was sold and is taxed at your income tax rate.


Ok, that's basically the simplest explanation of capital gains. But it doesn't answer the question "should I sell my rental property before June 25?""


Again, that depends.

  • if your capital gain is less than $250,000 the inclusion rate will remain at 50%.

  • if you think that it will increase beyond the $250,000 marker in the next few years and you intend to sell then consider doing the math to see what the possible tax implications may be for you. You may end up paying more than it's worth to hold it for a few years.

  • is there even time to sell? Possibly but it would depend on your product and where you're located. Not all things are selling in all markets at the moment.


I'm not a tax accountant and this is not my area of expertise so I am copying this from a tax accountant site and will offer a laymen's explanation below.:


Taxpayers should consider potential unforeseen tax consequences that could outweigh the tax benefit of realizing a gain before the inclusion rate increase. Considerations include:  

  • Large capital gains may result in alternative minimum tax for individuals and certain trusts.

  • Gains on a Canadian residential property (or rights to a pre-construction residential property) held for less than one year may be deemed to be business income (i.e., 100% taxable) under the residential property flipping rule, unless an exception is met.

  • If you're selling shares of qualified small business corporation (QSBC) or qualified farm and fishing property (QFFP), the impact of the increase in the lifetime capital gains exemption to $1.25 million (from $1,016,836) effective June 25, 2024, proposed in Budget 2024.

  • The proposed general anti-avoidance rule (GAAR) and penalty.  

  • Additional factors, such as current market prices and the loss of the tax-deferral on the unrealized gain.  


Ok, so the question remains; should I sell before June 25th. That answer is a resounding MAYBE! ;) Sorry about that.


If you really want to know how to figure out the tax and future tax implications of selling or holding a secondary property then you need to speak to a tax accountant. They have the secret math skills that help you out. And yes, I have a great recommendation for you.


If you do decide that selling is the way to go please take a look at my free Seller's Guide here. It will run you through all of the things you need to know about selling your home. Then call me so I can help you get it all ready. (seriously, I even paint if need be!)



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