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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.

Changes 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.

Cezar Raagas, partner – tax, Baker Tilly Vancouver

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.”

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