Understanding the Proposed Capital Gains Tax Changes in the 2024 Federal Budget
Overview
The Canadian government’s 2024 Federal Budget includes a proposal to increase the capital gains inclusion rate, which has many Canadians worried, especially those who own property or investments that have appreciated in value. This change means that more of the profit from selling these assets will be taxed. Here’s a breakdown of what this means and how you can plan for it.
What are Capital Gains?
When you sell something like a property, stocks, or other investments for more than you paid for it, you earn a profit called a capital gain. For example, if you bought a stock for $1,000 and sold it later for $1,500, your capital gain is $500.
Currently, only half of your capital gain is taxable. This is known as the 50% inclusion rate. If the budget is approved, this rate will increase, meaning more of your profit will be taxed.
History of the Capital Gains Inclusion Rate:
1972-1987: 50%
1988-1989: 66.67%
1990-Feb 2000: 75%
Feb-Oct 2000: 66.67%
Oct 2000-Present: 50%
The proposed change in 2024 will be the fifth adjustment to this rate, increasing it to 66.67% for certain gains.
Did you know?
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Proposed Changes
Starting June 25, 2024:
Corporations and Trusts: 66.67% of capital gains will be taxable.
Individuals: Gains over $250,000 will be taxed at 66.67%.
For individuals, the first $250,000 of capital gains each year will still be taxed at 50%. This threshold applies to gains from investments, properties, and other assets, even those inherited or passed on at death.
Example:
If you sell stocks and make a $300,000 profit:
The first $250,000 will be taxed at the 50% rate.
The remaining $50,000 will be taxed at the 66.67% rate.
Why it Matters
High-income individuals with large investments or those planning to sell significant assets, such as vacation homes or rental properties, will be most affected. The increase means paying more taxes on profits from these sales.
Planning Tips
Sell Before June 25: If you have valuable investments you plan to sell soon, consider doing so before the new rates kick in.
Manage Annual Gains: After June 25, try to keep annual capital gains below $250,000 to benefit from the lower tax rate.
Estate Planning: Discuss with advisors about the best ways to handle property and investments in your will, especially if they have appreciated significantly.
Special Considerations for Properties: Selling real estate like a cottage isn’t as simple as selling stocks. Plan carefully with your advisors to minimize taxes.
Example Calculation
If you’re in Ontario and sell an asset for a $100,000 profit before June 25, 2024:
Tax payable: $26,770.
If you wait until after June 25:
Tax payable: $35,690.
This means paying $8,920 more in taxes if you wait, but it could be worth it if the investment grows significantly in value.
Conclusion
Deciding whether to sell assets before or after June 25, 2024, involves many factors, including your financial needs, investment goals, and tax situation. It’s important to discuss your options with an expert to make the best decision for your circumstances.
Remember, the proposed changes are not yet law, so stay informed about any updates. For further details, consult a certified personal tax accountant and consider reading additional resources on managing wealth in Canada.
This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Always consult a qualified accountant before making any decisions regarding your tax situation.
