Capital gains tax could spawn cottage sales boom

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The new capital gains tax proposed in the Liberal budget has led to speculation that there might be a flood of cottages entering the market or a push for earlier closing dates as sellers try to avoid a hefty tax bill.

“I am seeing an increase in people wanting to list their properties now that this is going into effect,” said Beth Groom, a broker and owner of Cape Breton Realty.

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The capital gains tax, if it comes into effect, would tax profits on capital gains of more than $250,000 at almost 67 per cent, up from the prior rate of 50 per cent. It would result in an increased tax bill on capital gains for some sellers.

People in the Cape Breton area with inherited property they don’t use are in a crunch to sell, said Groom.

The Cape Breton market is not as busy as it has been in the last few years, “simply because there’s nothing left to sell.” Groom added that the spring market has picked up over the last few weeks, particularly for vacant land and large acreages.

“I think that’s where the biggest gains are going to be seen,” Groom said.

Groom added that buyers don’t seem to have it on their radar that now may be the time to buy. “But I think potentially sellers are thinking they would give a deal if it could close early,” she said.

Groom speculated that if she was working for the buyer, she’d put in an offer for a certain amount, closing prior to the June 25 date when the capital gains tax will come into effect, communicating clearly so that the seller knows if they close before that day, they may save money.

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Valarie Sampson, owner of RE/Max Park Place in the Cape Breton area, said buyers might want to consider moving quickly, but they should certainly have their ideal home in mind and think about where they want to buy it.

“We’re getting a few more people wanting to sell for sure, but it hasn’t been too noticeable just yet,” said Sampson. “I think people who are on the cusp of saying ‘OK, it’s time to get rid of our vacation property,’ that just pushed it over the edge.”

In Muskoka, the heart of Ontario’s cottage country, John Fincham, a broker with Re/Max Parry Sound Muskoka, said he believes the capital gains tax “is going to prompt a lot of people to list.”

“People for the first time in a while will have something to pick from,” Fincham said.

Since interest rates have been so high, many prospective cottage buyers have been waiting for rates to come down. But realtors say that it is turning into a strong buyer’s market and has been for a few months. This is for a few reasons, such as pandemic buyers rethinking if they still want to be cottagers, and owners no longer being able to afford a cottage.

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“You’ve got a combination of inventory to choose from, and lower prices,” said Fincham, adding that this puts buyers in a much better position than they previously were.

There are other reasons, too, why some realtors say now is a good time to buy.

“Our advice to buyers is actually to buy now, to take advantage of the market now, because when the rates do drop, there’s going to be more competition from a buying standpoint,” said Tracy Stewart, a broker with Chestnut Park Real Estate Brokerage in Port Carling, Ont.

Prospective sellers, or those with properties already on the market, since it would be tough to list a property and get everything completed before the June 25 deadline might feel pressured to sell quickly, prior to the date, and be “more agreeable” during negotiations, said Stewart.

But, she says she’s been warning clients not to rush into selling.

“The sky may not be falling,” she said. “It could actually backfire on a seller if they don’t do the proper planning,” such as estate planning, taxes, talking to an accountant or lawyer if necessary.

New listings around Ontario’s cottage country have been up 90 per cent since March 2023, and active listings are up 102 per cent, according to Chestnut Park market report. Stewart warns that this shouldn’t be sensationalized, as there are reasons for this increase in activity besides just the capital gains tax: Remote workers who perhaps decamped to cottages to work may have been called back to the office, mortgage rates have been high and the general cost of living is going up.

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Heather Scott, the Muskoka broker at Forest Hill Real Estate Inc, says that she has not noticed a change in the Muskoka market, but added that it’s a more unique region with heritage properties people would not take to selling lightly.

“Their Muskoka properties are coveted, they make decisions on them differently than they do their homes. They’re not likely to make any rash decisions based on a percent change,” Scott said.

But that doesn’t mean people shouldn’t be looking to buy, even with the factors that might alarm such buyers, such as the cost of living and the uncertain future on the capital gains tax.

“Think about that the enjoyment you’re going to get, and the long-term value,” Scott said.

Prices have levelled off since 2021 and 2022, Scott said. Buyers can now be pickier: “Quality matters, location matters.”

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