Learning from the experiences and close calls of others can be valuable.
Recently, we engaged with a client in Ontario who was considering selling the family farm. The family had been approached by a buyer who offered $1 million for the land, outside of Paris. The seller hesitated, thinking the farm could be worth up to $4 million.
After running some research, including assessing the Official Plan for the area, we sat down at our client’s kitchen table and revealed the true value of the property: somewhere between $18 and $25 million.
It was an emotional experience for our client, who was overwhelmed by the life-changing windfall for their family, while also recognizing the near-miss of hastily accepting an unfair, lowball offer.
As shock eventually subsided, the conversation shifted to the issue of capital gains tax that would apply to this property sale.
In this case, the client was set to earn a remarkable amount of money, taxes aside, but this experience provides a couple of lessons for other similar situations and also represents a harbinger of tax matters yet to come.
As our country continues to face massive deficits amid the ongoing pandemic and large-scale spending to blunt economic recession, personal suffering and social upheaval, we should expect our government to review changes to the tax regime with the potential for changes to the capital gains tax.
Meanwhile, we are entering an unprecedented period of wealth transfer in this country.
It’s important for families to be informed, prepared and advised on how to deal with the sale of valuable family assets. Changes are coming and perhaps for no property asset class could this issue be more significant than family-owned rental apartment buildings.
Family businesses hold most rental apartment buildings
Over the past few decades, the Canadian rental apartment market has intensified and has become one of our strongest, if not the strongest, property asset class.
Fuelled by low interest rates, strong demand for housing and meaningful investment returns, rental housing buildings are experiencing insatiable demand. It’s also tough to build new rental buildings in our big cities due to NIMBYism, skyrocketing costs and a slow bureaucratic planning and approval process.
The pandemic has fuelled the market and safe, secure, healthy, well-located housing feels more important than ever.
While consolidation and institutional investment continues to increase, we still estimate roughly 70 per cent of rental apartment buildings in Canada are owned by families or “mom-and-pop” businesses.
These are usually not rich people, but they now face decisions in handing down the family apartment business, or cashing out and facing the consequences of capital gains taxes.
<…….
Source: https://renx.ca/taxation-wealth-transfer-issues-loom-large-for-family-apt-building-businesses/
