How the Proposed Changes
to the Capital Gains Inclusion
Rate Might Affect You
Cezar Raagas, Partner, Tax for Baker Tilly Vancouver, looks at how changes proposed in the
2024 Federal Budget will affect property owning businesses and individuals.
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C
hanges to the capital gains inclusion rate proposed by the 2024 Federal
Budget in April will have important impacts for individuals and
corporations who own and plan to sell capital property.
A capital gain is realized when a taxpayer owns capital property and they
sell it for more than what they bought it for. "Effectively, your capital gain is
your selling price less your cost of the property," says Cezar Raagas, partner,
tax, Baker Tilly Vancouver. "Examples of capital property would be marketable
securities, a cottage, rental property or shares of your corporation."
Under the existing rules, only 50% of the calculated capital gain (i.e. taxable
capital gain) is included in a taxpayer's income, and the taxable capital gains
are then taxed at the taxpayer's relevant tax rate. When the Federal Budget was
presented in April 2024, it proposed a change to the inclusion of capital gains.
Effective June 25, 2024, the following rates will apply:
• Individual
- 50% inclusion rate up to $250,000 of capital gains
- 66.67% inclusion rate for all capital gains in excess of $250,000
• Corporations/Trust
- 66.67% inclusion rate for all capital gains
"Because a taxpayer is required to take more capital gains
into income, the potential increase in taxes payable could be
substantial depending on who is selling and where they are
resident of," Raagas says. "In order to determine the impact
and whether tax planning is necessary, it would be best to
discuss your particular situation with a tax advisor. This is
especially more so for anyone who was already planning
on selling their capital property within the next two to
three years."
In the meantime, individuals and business owners
uncertain how the proposed changes to the capital
gains inclusion rate might affect them should think
about what capital property they own and whether it
has any unrealized capital gain.
"It would also be helpful for capital property owners
to consider their time horizon for selling," Raagas says.
"They should also consider their annual rate of return
as it has an impact on the decision whether or not any
tax planning is required prior to June 25, 2024."
