UDI Letter on the Capital Gains Inclusion Rate

The Honourable William Francis Morneau
Minister of Finance
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario K1A 0G5

Dear Minister Morneau:

Re: Budget 2017 – Transportation and Housing Investments and Concerns about Increasing the Capital Gains Inclusion Rate

The Urban Development Institute Pacific Region (UDI) is an association of the development industry and its related professions in British Columbia. Our industry has a significant impact on both the provincial and national economies. The development industry in British Columbia contributes over $17 billion in GDP, creates over 107,000 jobs, and provides $4 billion in government revenues.

We are pleased that your government has made housing affordability and transportation infrastructure policy and budget priorities. In British Columbia, these issues are important to both the public and the business community. Without improvements to housing supply and transportation infrastructure in British Columbia, the development industry will not have access to employees or be able to get housing to market. We hope the federal budget will include continued investments in both housing and transportation.

UDI is concerned with some media reports that your Government is considering increasing the capital gains inclusion rate to 66.67%, or even to as high as 75%, in the upcoming Federal budget. This would severely impact business investment in Canada and our global economic competiveness.

In the development industry, an increase in the capital gains inclusion rate may result in fewer commercial, industrial and housing project starts. This could undermine job creation, economic growth and tax revenues. Reducing housing supply, especially in fast growing areas such as Vancouver and Toronto, would stand in contrast to one of your government’s key objectives, which is to improve housing affordability.

If the Federal Government is considering such a change to the capital gains inclusion rate, we ask that you first consult with business groups from various sectors in the economy, including the development industry.

We also recommend that, if the inclusion rate increases, the Government considers allowing for a tax deferral mechanism such as a “tax rollover” in situations where there is a capital gain, but the proceeds from the sale are being partly or wholly reinvested into the Canadian economy. This will reduce the impact of the tax, while creating an incentive for reinvestment. In addition, we recommend that existing sales transactions that are binding on vendors, but not yet closed, be grandfathered if the rate increases.

UDI is grateful for your efforts in the affordable housing and transportation space, and we hope Budget 2017 will include further funding for both initiatives. We also ask that you consider our recommendations related to the capital gains regime.

Yours sincerely,

Anne McMullin
President & CEO