Unlocking Property Reinvestment (Capital Gains Rollover)

REALTOR® POSITION
Allow the capital gains tax and the recaptured capital cost allowance to be deferred when an income property is sold and the proceeds are reinvested in another income property within one year.

THE ISSUE
Many average Canadians are reluctant to sell in order to reinvest in another income property because of the tax consequences. Paying the capital gains tax and recapture of the capital cost allowance leaves investors with less equity and unable to acquire a property of similar value.

Removing the disincentive to reinvestment, by allowing tax deferral, would rapidly trigger a chain reaction of stimulus. Moreover, this stimulus would occur without program delivery slowdowns caused by complex bureaucratic implementation issues.

This is a Main Street proposal. Dr. Thomas Wilson of the University of Toronto found those with net incomes of $50,000 or less accounted for approximately 58 percent of those reporting rental property capital gains and 48 percent of the total dollar value of rental property capital gains.

This proposal would help stimulate demand for the struggling commercial real estate sector, which has yet to rebound from the global economic recession. A study by CB Richard Ellis Limited found sharp decreases in the number and volume of Canadian commercial real estate transactions at mid-year 2009. Year-over-year, transaction volumes declined by 51 per cent from $10 billion midway through 2008 to $4.9 billion midway through 2009, and the number of transactions declined by 38 per cent.

Transactions in the commercial real estate market impact industries across the economy. A healthy sector creates opportunities for trades people in renovations and redevelopment; fees for professionals; income for industries that mine, harvest and manufacture construction materials; as well as tax revenue for all levels of government.

New research from Altus Group Economic Consulting estimates, between 2006 and 2008, the typical multi-unit residential income property transaction in the Greater Toronto Area (GTA), Greater Calgary Area (GCA) and Greater Vancouver Area (GVA) generated $287,850 in ancillary spending. The Altus study also found 53 jobs were created for every 100 transactions, based on multi-unit residential income property transactions between 2006 and 2008 in the GTA, GCA and GVA.

Reinvestment would help create additional housing capacity to meet the demands of rental housing and urban intensification. According to the Canadian Federation of Apartment Associations (CFAA), purpose-built rental housing starts across Canada have declined over the last 35 years from an average of 60,000 starts per year to an average of less than 15,000 starts per year, despite population growth.

This proposal would make real estate a more viable investment vehicle for Canadians saving for their future - many of whom bare personal responsibility for their retirement as a result of corporate Canada's shift from defined benefit to defined contribution pension plans. It would also enable Canadians to relocate their real estate holdings to correspond with a move to another city, something that is easily done with a stock or bond portfolio.

There is widespread support for this proposal, including the National Trade Contractors Coalition of Canada (NTCCC), the Canadian Construction Association (CCA), the CFAA and the Real Property Association of Canada (REALpac).

 This information was provided by CREA.

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