Canada Capital Gains Tax Increase: Understanding the Proposed Changes

The Canadian government proposes to increase the capital gain tax from one-half to two-thirds. The government plans to bring the Capital Gains Tax changes legislation before the summer break. Canadians should be aware of the changes to plan their next sale of an asset, stay tuned to get detailed information.

Canada Capital Gains Tax Increase

On 16 April 2024, the Canadian government proposed an increase in capital gain inclusion rate from 50% to 67% in the 2024 federal budget. 

The government says the changes will be effective from 25 June 2024, the citizens will have to pay tax on the capital gains from one-half to two-thirds of corporations and trusts and on the portion of capital gains above $250,000 for individuals in a year.

The government has announced that it will separately implement the capital gain tax bill from its budget implementation bill. 

The officials confirm that they will begin the legislation process to implement the changes in the capital gain inclusion rate before the summer break. 

According to the reports, the changes in the capital gain tax are mentioned in the budget’s tax annex, which indicates that the Canada Revenue Agency (CRA) will implement the changes only after the legislation is passed by the government.

What does the increase in Canada’s Capital Gains tax mean?

The Capital gain tax applies to taxable income that individuals gain when they sell a capital asset. The profit from the sale of the capital asset is the taxable income here. 

Capital gain is defined as the difference between the sale price of the assets and the total purchase price of the property, which includes expenses sustained due to the sale and total acquisition cost of the assets. 

According to the CRA, the capital assets include cottages, land, equipment you use in rental or business operations, buildings, and securities (such as mutual fund trusts, stocks, bonds, etc.).

With the increase in capital gains tax, the government is trying to gain more tax from the rich class. Any individual who gains profit above the income threshold of $250,000 in a year would have to pay two-thirds of their income as tax on their tax returns. 

Tax consequences to consider with Capital Gains tax increase

The Canadians should look for the following tax consequences of the changes in capital gain taxes:

  • The large capital gain over the sale of any capital assets may result in abiding by the rule of alternative minimum tax for certain trusts and individuals. 
  • When you sell the shares of qualified farm and fishing property (QFFP) or qualified small business corporation (QSBC), the increase in lifetime capital gains exemption will impacted to $1.25 million from 25 June 2024
  • The capital gain on  Canadian residing property or pre-construction residential property acquired for less than a year will entitle you to taxable business income under the Residential Property Flipping Rule, except if you meet the exemption. 

Should you sell before the changes become effective from 25 June 2024?

Many Canadians wonder if they should sell or transfer their assets to the younger generation with the anticipated capital tax gain inclusion rate hike. The Canadians must sell or transfer the assets to the younger generation to take advantage of the lower inclusion rate before 25 June 2024. 

The transfer of assets presents the taxpayers with an opportunity to elect an amount to be deemed as a disposition for each transferred property for the taxpayers. This gives the taxpayers the liberty to elect any amount at or above unpredictable capital cost that will not exceed the market value of assets.  

Hence, your elected amount will affect the capital gain and the taxpayer has the option to realize the capital gain fully or partially. This would allow you to save capital gain before the changes get implemented before the summer break.

Response to the Canada Capital Gains Tax Increase

The Canadian business owners criticize the proposal as it would increase the taxable income on the sale of their capital assets. The business groups call this an unwise move, they argue that the gains increase would discourage people from investing in capital assets. 

Analysts say that people will pay more in their personal income tax returns due to increased capital gains. 

However, the government ensures that only 0.13% of Canadians would be impacted by the increase in capital gain taxes, and the people who sell their primary residence would not be affected by this change. 

The proposed changes in the capital gain taxes have not been drafted in legislation yet, the taxpayers should be aware of the impact of the changes effective from 25 June 2024.  Mostly the high-income earners who invest a lot in real estate would be affected by the changes as the income threshold limit for a year is $250,000. 

Visit the NCBLPC Homepage To Get The Relevant Content.

Leave a Comment