The Proposed Change
Capital gains changes are here! Discussions surrounding an increase to the capital gains inclusion rate have been buzzing for the past several years. In fact, for many of you, we have already capitalized on strategic planning in anticipation of these changes. While we speculate that the pandemic might have granted us a few extra years of reprieve, the time has finally come. The 2024 Federal Budget has officially proposed a bump in the inclusion rate to 66.67% for dispositions of capital property occurring on or after June 25, 2024.
To be clear, this isn’t a direct 66.67% tax. There’s been a fair share of misinformation circulating, leading to confusion. The adjustment pertains to how much of your capital gain becomes taxable income. For years, the inclusion rate has stood steady at 50%. For instance, if you made $500,000 on a sale, only $250,000 would currently be taxable. With the proposed changes, that same $500,000 gain would be subject to a taxable income inclusion of approximately $333,333.
To note: individuals will maintain the 50% rate for the first $250,000 of capital gains annually. Anything beyond that threshold will be subject to the higher rate. Corporations and trusts, however, will face a full 66.67% inclusion rate.
Practical Impact
This adjustment carries important weight, especially for those dealing with significant transactions. The changes will primarily affect taxpayers falling into the following categories:
- High-income earners and taxpayers with substantial capital gains from investments
- Corporations with investments in real estate, marketable securities and other capital assets
- Business owners selling their shares for a significant gain
- Estate inheritances where there are sizable capital gains, outside a principal residence
Strategic Approaches
For those within these groups, it’s worth considering whether any action should be taken before June 25, 2024. Our stance generally remains steadfast in advising against hasty decisions, especially considering the whirlwind of legislative changes and then retractions we’ve witnessed in recent times (bare trust changes, underutilized housing tax, etc) However, there are certainly some situations where planning would be beneficial. Some examples:
- You were going to sell securities, especially in a corporation, in the near future
- A taxpayer’s health is waning and they likely won’t live 5+ more years
- You wanted to sell real property (not your principal residence) in the near future
- You were thinking about boosting your corporation’s Capital Dividend Account in the near future
- You were planning to emigrate from Canada this year
If you think these changes might impact you, please reach out to us. We’re here to offer the guidance and expertise you need to navigate this change.