2015 Federal Budget – Impact on Real Estate

Finance Canada released the 2015 Federal budget on April 21, 2015 which included some positive measures for private businesses and some tidbits for individuals. Here are some highlights that impact the real estate industry:

  • Finance has proposed to drop the small business corporate tax rate to 11.5% from 13.5% (BC rates) on the first $500,000 of income.

  • Finance has proposed to exempt a taxpayer of capital gains on the donation of real estate to a charity or other qualified donees (e.g. private foundation).

  • Finance has started a public consultation process on the taxation of real estate income. Currently certain real estate income earned by a private corporation with less than five full-time employees (likely because they contract out property management) is taxed at about 45% (a portion of which becomes refundable on the payment of a dividend to an individual). Finance is considering taxing such income at the tax rate applicable for corporate business income of 26% and possibly make the income eligible for the small business rate of 11.5%. This would cause private corporations to pay less tax and have more after-tax proceeds to reinvest. After-tax cap rates would be amplified accordingly. Finance cited “trailer-parks” and “self-storage” income as examples, but this measure could apply to rental income earned from broader asset classes including office, industrial, commercial, and multi-residential properties.

Please see here for a complete analysis of all of the 2015 Federal Budget measures.

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