Economic Crossroads: The Impact of Capital Gains Tax Increase on Canadian Business and Innovation

In a recent bold move by the Liberal government, the capital-gains inclusion rate in Canada is set to increase from 50% to 67%. This decision has sparked widespread debate and concern across various sectors of the economy, from large businesses to individual investors. Today, we delve into how this policy change is poised to reshape the economic landscape in Canada.

Ryan Beedie, president of Beedie Development and a noted philanthropist, illustrates the immediate consequences this tax hike will have on businesses like his. Beedie Development, a significant player in industrial real estate and residential projects, channels most of its cash flow into ventures that not only promote growth but also support community welfare through extensive philanthropic efforts. With the new tax rate, the capacity for such investments is under threat. This reduction in investment capacity means not only fewer business opportunities but also a scaled-down support for charitable causes, which are crucial for societal wellbeing.

The implications extend beyond individual companies. The change will likely make many potential investments economically unfeasible due to the increased cost of capital. This could result in fewer jobs and lower overall economic productivity, impacting sectors as vital as housing and employment. For instance, Beedie’s involvement in a significant mining project in British Columbia underscores the potential job losses that could result from reduced investments, with hundreds of jobs at stake both during and post construction.

Furthermore, the government’s assertion that only 0.13% of Canadians will be affected by this change has been met with skepticism. The reality seems to be that the ripple effects will touch a much broader segment of the population. This includes not only business owners but also employees, consumers, and even non-profits that play a vital role in community support.

Turning to the broader implications, John Ruffolo, a seasoned investor in Canada’s tech sector, voices a similar concern about the stifling effect on innovation. Ruffolo, who has been at the forefront of tech investment for three decades, highlights how the tax increase could deter investment in innovative ventures critical for boosting Canada’s economic productivity. The tax change comes at a time when Canada is already grappling with economic stagnation and challenges in maintaining competitiveness on the global stage.

Moreover, Ruffolo argues that the tax increase could particularly harm sectors that are pivotal for future growth, such as technology and entrepreneurship. With the tech community already rallying against this move through petitions and public forums, the sentiment in the market is clear: increasing capital gains tax could be a step back for Canada’s innovation agenda.

While the government aims to enhance fairness in taxation, the absence of corresponding tax relief for the middle class and lower-income earners seems to be an oversight. This approach could potentially exacerbate the economic divide, rather than bridging it.

As we reflect on these developments, one must wonder: Are we risking the very engine of growth that drives our national economy? What will the long-term effects be for a country that prides itself on a robust and vibrant market economy? And importantly, how will this decision shape our ability to innovate and compete on a global scale?

These questions are critical as we consider the future of Canadian economic policy and its impact on every citizen’s life. As you ponder these thoughts, think about what role each of us plays in this interconnected economy. How does each decision, policy change, or economic shift affect you, your community, and the broader national landscape?

Condo Conundrums: Toronto’s Tumultuous Real Estate Market

In Toronto, the once bustling condo market has hit a significant slowdown. Developers, facing dwindling demand for new condos, are pulling out all the stops to entice buyers, as seen in the drastic measures now being adopted to sell units in a market that continues to weaken. The city, known for its soaring skyscrapers and dense urban living, has seen a notable decline in condo sales, prompting developers to offer an array of incentives to attract buyers and brokers alike.

Since mid-2022, over 11,595 condo units across 29 projects have faced delays, a situation exacerbated by persistently high interest rates and faltering market confidence. According to Urbanation, a real estate research firm, developers launched only four new projects in the first quarter of 2024, a sharp decline from previous years. This reticence to launch new projects stems from the harsh reality of a 75% reduction in demand.

Developers are now providing incentives such as reduced or waived development levies, parking fees, and significantly lowered deposit requirements—some less than 15%. Additional offers include higher broker commissions, interest on deposits, and various mortgage assistance programs. For instance, Toronto developer Camrost Felcorp recently offered to pay up to $90,000 of the mortgage costs for two years on units priced under $1 million. Similarly, Emblem Developments introduced a reduced down payment scheme, allowing buyers to pay just 10% spread over two years, as opposed to the standard 15 to 20% upfront.

These incentives are not just a marketing strategy but a necessity. Developers find themselves needing to sell the final 10% of their units to secure financing for construction. By offering these terms, they avoid lowering unit prices, which could devalue their entire project. Instead, they seek alternative methods to attract and retain buyers without directly impacting the market value of their properties.

In conversations with industry experts like Simeon Papailias, managing partner of Royal LePage’s REC Canada, and Daniel Foch, a Toronto-based realtor, it’s clear that the real estate landscape in Toronto is shifting dramatically. Foch noted the use of increased commissions as a de facto cashback system to stimulate buyer interest. These tactics highlight the desperation and creative strategies developers are resorting to in order to navigate through the current market downturn.

Amidst these market conditions, Yair Rabinovich, founder of Rare Real Estate, reflects on his experiences through four real estate downturns, pointing out that the current slowdown is the most severe he has witnessed. Developers are under pressure not only to meet their financial obligations but also to contribute to Toronto’s housing supply, which is anticipated to face significant challenges in the coming years. Tim Syrianos, principal broker at Re/Max Ultimate Realty, emphasizes the looming supply issues, projecting that by 2027 and 2028, the market will experience a scarcity of new units, further complicating Toronto’s housing affordability crisis.

This downturn in Toronto’s condo market serves as a vivid reminder of the delicate balance between supply and demand in real estate. With developers forced to offer unprecedented incentives to stimulate sales, one must ponder the future implications for urban housing markets globally. As Toronto grapples with these challenges, it raises a critical question for us all: How can cities maintain affordable housing options in the face of diminishing supply and fluctuating demand?

Stalemate in Spring: Toronto’s Real Estate Market Faces Uncertain Future

As the spring of 2024 unfolds, the Toronto real estate market finds itself at a peculiar standoff. While new listings have surged by an astonishing 47% compared to last April, sales have paradoxically sagged by five percent year-over-year. This situation presents a curious dynamic where supply is abundant, but buyer activity remains tepid, leaving the market in a state of limbo.

The Toronto Regional Real Estate Board (TRREB) reports this increase in listings, but the anticipated spring surge in buying activity has not materialized. Instead, what we are witnessing is a market heavily influenced by high interest rates and a significant timing issue between sellers eager to capitalize on a potentially lowering rate environment, and buyers who are still waiting for that definitive signal to jump into the fray.

TRREB’s Chief Market Analyst, Jason Mercer, pointed out that sellers are flooding the market in anticipation of interest rate cuts by the Bank of Canada, which they hope will spur increased home purchasing. However, buyers are holding back, needing to see a tangible change in the financial landscape before committing to such substantial investments. This hesitancy is underscored by the lingering uncertainty surrounding the Bank of Canada’s future actions, despite forecasts that rate cuts could come as early as June.

In the current market, high interest rates have escalated the costs of home ownership to unprecedented levels. Despite a near 15% drop from the February 2022 peak, the average home price in Toronto remains daunting for many. This is especially true for variable rate mortgage holders, for whom the cost of owning a home has risen by about 30% due to the rapid hike in rates over the past two years.

The sales dip is not uniform across all housing types. Condominiums have seen a 6.5% decrease in sales, indicating that the first-time homebuyers—often the most rate-sensitive group—are particularly absent from the market. Detached single-family homes are also experiencing a decline, with sales down by over seven percent, as potential buyers adopt a wait-and-see approach, despite possibly holding substantial equity in their current properties.

Interestingly, the overall impact on home prices has been minimal. The average selling price in April nudged up by just 0.3% year-over-year to $1.15 million. This marginal increase, along with a slight month-over-month rise of 1.5% from March, suggests that while the market is not tightening just yet, there is a cautious optimism that lower borrowing costs in the latter half of the year could invigorate buyer activity and lead to price growth as we move into 2025.

The real estate market in the Greater Toronto Area (GTA) offers a plethora of choices for home buyers currently, with new listings markedly up from last year. TRREB President Jennifer Pearce noted that while many homeowners anticipate a rise in demand through the spring, the actual buying is likely on pause until the Bank of Canada begins to cut rates. This waiting game is reflective of a broader issue in housing markets globally—finding the balance between government policies, market dynamics, and buyer sentiments.

Moreover, TRREB CEO John DiMichele highlighted the necessity for government policy alignment to improve housing affordability and choice effectively. The current policy dissonance not only affects market stability but also complicates long-term planning for both potential homeowners and developers.

As Toronto grapples with these complexities, one must ponder the broader implications of such a market standoff. What does this mean for the future of urban housing markets, particularly in cities like Toronto where the balance between housing availability, affordability, and economic policy is so crucial? And more importantly, how can policymakers, developers, and buyers find common ground to foster a more dynamic and responsive housing market?