Capital Pains Tax

Toronto’s April market was stable compared to last year.  Condominium apartment sales lead the decline in transactions as the investor market struggles amidst higher interest rates and regulations that hamper landlords.  Existing regulations include non-deductibility of expenses for short term rentals, obstacles to ensure vacant possession for sold condos and backlogs at the Landlord and Tenant Board.

Supply has increased giving Buyers more choice as the Sales to New Listings Ratio shifted from a balanced market to buyer’s market from March to April.  Meanwhile, prices are higher than a year ago for all types of properties and remain resilient as there have been month-on-month price increases for freehold and condos since January 2024.

I ended last month’s newsletter to stay tuned for housing related initiatives from the federal government.  Effective June 25, 2024, the federal government proposed to increase the capital gains inclusion rate from 50% to 66.67% which will lead to higher tax liability for taxpayers owning assets such as shares, bonds and multiple properties.  The capital gains inclusion rate will increase from 50% to 66.67% for corporations and trusts, while the inclusion rate will increase to 66.67% for individuals for capital gains that exceed $250,000.

The result is that real estate investors who are already struggling for the reasons I mentioned above will try to cash out before the new capital gains.

From a tax planning perspective, if family members (or really good friends!) were planning to bequeath an investment property, it would be advantageous to do so before the June 25, 2024 deadline.

With Toronto’s real estate prices having doubled in the past 8 years, here’s an illustration of the change for an individual who purchased a property for $500,000 and selling/transferring for $1,000,000 (excluding transaction costs, land transfer taxes etc) assuming a 40% marginal tax rate.

In this situation, the owner would pay $17,000 more in capital gains tax if they were to sell or transfer after June 25, 2024.

With the progressive tax system and higher inclusionary threshold, a larger gain would result in disproportionately more taxes.  Assuming a $1,000,000 gain instead of $500,000 with 50% tax rate, the owner would have a tax bill of $63,750 which is 3.75 times more in tax despite only twice the gain.

As for the rest of the spring market, I’m expecting a buyer’s market as interest rates are unlikely to significantly change in 2024 and there will likely be more properties coming onto the market to beat the June 25, 2024 timeline.

Shen Shoots the Breeze

I celebrated a milestone birthday earlier this year. Along with well wishes from friends and family, I also received notices from Ontario Health to get screened for both breast and colon cancer. Yeah!

This is not a reminder for you to get checked early for various cancers/diseases (however, if this newsletter can serve as a potential life-saving reminder, we will take credit for it), I’ve noticed that I can’t have the same type of eating habits of my youth.

I’m not a weight-loss expert but I’ve found these tips to be helpful to help keep off the pudge.

  1. I weigh myself every morning before eating anything and log it. I don’t know where I’m heading if I don’t track it. Weight loss is not a linear line so I try not to get discouraged.
  2. I drink a cup of water as the first thing I have every morning.
  3. I drink a cup of water before each meal because it makes me feel more full and try to avoid sugary drinks and juices.
  4. I take time eating because my brain is slow to tell me when I’m full.
  5. I don’t drink my fruits; but eat them; preferably fresh/frozen fruits over dried fruits.
  6. I don’t have a regular workout routine, but I do something active for at least 30 minutes each day. It doesn’t have to be 30 consecutive minutes; but even breaking it down to three 10-minute active sessions helps.
  7. I try not to eat at least 3 hours before my bedtime. I do that by brushing my teeth after my last meal. This is difficult especially if there’s a big slice of pie left in the fridge – which brings me to my next point.
  8. I don’t buy snacks or sweets that I am tempted to grab, especially when I’m tired or bored. Unfortunately, my local bakeries are going to get less visits from me.
  9. I don’t make any food off-limits. I think it’s okay to eat my favourite foods and snacks – I need to mindful of how much and how often. I used to track everything I ate but found it consumed too much of my mind space.
  10. I set a realistic and healthy target. I could have set a more aggressive weight loss plan in 2 months but I decided to work on towards my target over 6 months instead.