On April 16, 2024, the Minister of Finance (Canada) presented the Government of Canada's 2024 Federal Budget (“Budget 2024”). Significant Budget 2024 proposals and updates relating to the real estate industry are summarized below.
Capital Gains Inclusion Rate
Currently, 50% of a capital gain is included in computing a taxpayer's income. For capital gains realized on or after June 25, 2024, the Budget 2024 proposes to increase such rate from 50% to 66.7% for all corporations and trusts, and from 50% to 66.7% for individuals, but only with respect to the portion of capital gains realized annually that exceed $250,000. The Government of Québec has announced that it will adopt equivalent changes.
Accelerated Capital Cost Allowance – Purpose-Built Rental Housing
Purpose-built rental housing consists of a residential complex with at least four private apartment units (with separate kitchen, bathroom, and living areas), or ten private rooms or suites, and in which at least 90% of residential units are held for long-term rental. The current capital cost allowance (“CCA”) rate for purpose-built rental housing is 4%. The Budget 2024 proposes that the CCA rate will be increased to 10% for eligible purpose-built rental projects that begin construction on or after April 16, 2024, and before January 1, 2031, and are available for use before January 1, 2036, effectively accelerating depreciation expenses for tax purposes for those projects.
Interest Deductibility Limits – Purpose-Built Rental Housing
The Government of Canada's 2021 Federal Budget introduced a rule which limits the amount of net interest and financing expenses that may be deducted by certain taxpayers to, very generally, 30% of tax EBITDA. The Budget 2024 proposes to include an elective exemption for certain interest and financing expenses incurred before January 1, 2036, in respect of arm's length financings used to build or acquire eligible purpose-built rental housing in Canada. This change would apply to taxation years that begin on or after October 1, 2023. In effect, no such deductibility limit will apply to eligible projects for which said election is duly made.
Extending GST Relief to Builders of Student Residences
On September 14, 2023, the Government of Canada announced proposed legislation to enhance the Goods and Services Tax (“GST”) Rental Rebate on new purpose-built rental housing, from 36% to 100% of the GST self-assessed by the builder (currently at a 5% rate). The Budget 2024 proposes to expand this enhanced GST rebate such that universities, public colleges, and school authorities that operate on a not-for-profit basis could now be subject to GST self-assessment requirements and could qualify to receive the enhanced GST rebate in respect of new student housing. The proposed measures would apply to student residences that begin construction after September 13, 2023, and before 2031, and that complete construction before 2036.
Other Measures to be Considered by the Government
The Budget 2024 also set out the Government's intention to consider potential new measures to expand access to alternative financing products such as halal mortgages, to restrict the purchase and acquisition of existing single-family homes by very large corporate investors and a new tax on residentially zoned vacant land to spur development. The Government of Canada is expected to conduct consultations in the coming months and provide further details in the 2024 Fall Economic Statement.
What Fasken Can Do for You
Fasken's real estate and tax law teams can assist you in taking advantage of these newly announced measures and minimizing any adverse impacts they may have on planned or ongoing transactions. Considering fast-approaching deadlines, please keep in mind the time required for the implementation and execution of transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
