Prime Minister Justin Trudeau’s decision to prorogue Parliament has left a proposed capital-gains tax increase in limbo after many commercial real estate investors sold properties to avert it.

Trudeau’s Liberal government unveiled the increase in spring 2024 as part of the annual federal budget. But the legislation tied to the budget, and the capital-gains increase, has yet to be passed in Parliament.

Investors across Canada rushed to complete commercial real estate deals before the capital-gains tax increase took effect in on June 25, 2024, industry insiders previously told Connect CRE and other media outlets.

The government effectively implemented the increase at the outset of a Bank of Canada monetary-easing policy that has resulted in five consecutive interest-rate cuts.

With borrowing costs still high, many investors chose to sell older properties across a wide variety of asset classes, notably multi-family, in advance of the capital-gain tax changes.

That situation led to a spike in sales in the midst of a market slowdown as buyers took advantage of the tax-related pressure facing sellers.

The proposed new rules call for investors to be taxed on 66.67% of the profit on an asset sale. Each investor’s annual capital gains must exceed $250,000 for the increase to apply.

Investors have faced a 50% capital-gains tax on asset-sale profits, also based on the $250,000 profit threshold.

Trudeau’s decision to prorogue Parliament, with permission from Governor-General Mary Simon, essentially spelled its temporary shutdown until March 24. The shutdown left Parliament’s approval of the capital-gains tax legislation uncertain after it was introduced in the House of Commons in September 2024. (All other bills and motions are also affected by the prorogation.)

Trudeau made the move to prevent his government from being defeated after he announced his resignation pending the election of a new Liberal leader. But the Canada Revenue Agency has begun to collect capital-gains taxes based on the new rules, according to multiple reports.

“It’s an unfair burden for Canadians; I really think there should be clarity immediately,” Mark Goodman, principal of Vancouver-based commercial real estate brokerage firm Goodman Commercial, told CTV on Wednesday.

He previously told Connect that his company saw a rush of multi-family and development-land deals before the June 25 deadline.

The CRA will issue the forms to allow taxpayers to file tax returns based on the increase by the end of January, Department of Finance spokeswoman Marie-France Faucher told the Globe and Mail via e-mail.

But it remains to be seen how soon the capital-gains tax increase will come before Parliament again, or even if it will appear on the government’s agenda. The proposed increase could become a thorny election issue that the Liberals seek to avoid.

An election is inevitable at some point this year, because the Liberals’ term in office is due to expire and they could be defeated in a non-confidence vote in the meantime.

After the prorogation of Parliament, the government must make another Throne Speech when the House of Commons resumes sitting. The Throne Speech must receive parliamentary approval under what is automatically considered a confidence vote. If the Throne Speech does not receive approval, that would be a sign of non-confidence in the government and spell its immediate defeat, prompting an election.

(The Throne Speech is delivered by the governor-general and lays out the government’s policy agenda at the start of a new parliamentary session.)

Opposition parties have also vowed to bring the minority government down through a separate non-confidence motion.

Jasrajah Hallan Singh, the Conservative finance critic, told the Globe that Conservative Leader Pierre Poilievre would not pursue the capital-gains tax changes if he becomes the country’s next prime minister. Poilievre, a staunch fiscal conservative, is well ahead in the polls.

Hence, the Liberals face a considerable time crunch to pass the capital-gains tax increase, if they still want to.

“We could be in this weird limbo period for a year or two, driving uncertainty [about the capital-gains tax increase] which is super unfair to my members,” Dan Kelly, president and CEO of the Canadian Federation of Independent Business, told CBC.

Meanwhile, commercial real estate investors who sold their properties last summer are left to wonder what might have been if they had held on to them.

Arguably, sellers face much more favourable conditions now that interest rates are considerably lower, the bid-ask gap is narrowing and investment-capital allocations are expected to increase significantly.

“Now that the tax may get asked, many people, many investors, many of our clients, may be upset that they sold quickly,” Mark Goodman told CTV. “Some may have seller’s remorse.”

Adam Jacobs, national head of research for Colliers, previously told the Financial Post that his firm closed a monthly record 156 deals on behalf of clients between June 1 to June 30, 2024. Colliers also recorded its highest June completion total in a decade, the Financial Post reported.

“It was a big surprise for us, of course, because the commercial market was down,” Jacobs told the FP. “Everyone had an opportunity to do a deal at the old capital-gains tax so I think that was what we saw people do. [They said to themselves:] ‘I think I’ll just cash out now and do the deal before I have to deal with more taxes in the future.’”

Ray Wong, an Altus Group vice-president, previously told Connect that the Toronto-based CRE market- intelligence firm gathered data showing sales completions increased across Canada prior to the June 25 deadline.

As Connect reported previously, Altus data also showed that Greater Toronto Area non-arm’s length commercial real estate sale completions spiked in the weeks before the expected tax increase.

From May 1 to June 30, GTA non-arm’s length deals approximately tripled year-over-year to 47 from 16, according to Altus.. The increase bucked a trend whereby all completed GTA transaction types (not just arm’s length deals) for May 1 to June 30 dropped 17.8% to $3.7 billion from $4.5 billion during the same period in 2023.

Pictured: Prime Minister Justin Trudeau

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