CORPIQ calls for residential rental properties to be excluded from capital gains tax increase

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The Liberal government has announced that the inclusion rate on capital gains in excess of $250,000 per year will increase from 50% to 66%, effective June 25, 2024. This measure should affect nearly 40,000 Canadians, across all asset classes, according to federal estimates. However, in residential rental property alone, there are more than 440,000 property owners. The Corporation des Propriétaires Immobiliers du Québec (CORPIQ) dares to believe that the measure will exclude the residential rental sector, as it is likely to exacerbate the housing crisis and the difficulties already encountered by owners and tenants.

CORPIQ calls for residential rental properties to be excluded from capital gains tax increase

(Federal Finance Minister Chrystia Freeland is pictured speaking with reporters in Ottawa on Tuesday. Photo: Adam Huras/Brunswick News)

A measure to be avoided in the midst of the housing crisis

If such a measure were to come into force, the consequences would be disastrous in the short, medium and long term. Quebec landlords who are struggling to support affordable rental stock often only have the proceeds from long-term sales to justify their perseverance in the rental market. Adopting this measure would reduce the attractiveness of long-term ownership, leading to an upward effect on rents, which is definitely to be avoided in the current context.

It should be remembered that the affordable housing stock is currently held largely by small investors, who often contribute voluntarily to the management and maintenance of their buildings. As reported by the Canadian Housing Corporation (CMHC) last June, 23% of housing units in the Montreal metropolitan area (CMA) are rented for less than $750 a month, equivalent to 145,000 private units. The Léger survey conducted for Vivre en ville in the spring of last year also confirms that 60% of tenants in the Montreal CMA pay less than $1,000 a month, 64% in the Quebec City CMA and 79% in the rest of Quebec.

However, these statistics, demonstrating the abundance of affordable housing in the private sector, conceal a harsh reality: these units have a negative impact on the profitability of buildings, to the point where their maintenance and upkeep become impossible, pushing this housing stock towards a breaking point. By eliminating the prospect of profitability on resale, many affordable housing units could fall into the hands of more experienced investors, leading to increasing financialization of the real estate market.


Encouraging long-term ownership, not the opposite

Applying a 50% capital gains tax already places a considerable burden on owners when they sell their properties. Moving from 50% to 66% is a severe blow to the delicate market balance that justifies long-term ownership. This measure penalizes owners who are already making considerable efforts to maintain financial equilibrium. Other types of investment, such as shares and bonds, which are more liquid, will not be subject to such severe taxation. Property owners will inevitably be tempted to move their real estate holdings to the stock markets, thus getting rid of buildings condemned to certain deterioration.

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