Here’s a breakdown of what you need to understand about this change:
Capital gains are the difference between the purchase price and the selling price of an asset, such as cottages, investment properties, stocks, or mutual funds. For example, if a cottage is sold for $100,000 more than it was bought for, the capital gain would be $100,000.
Certain scenarios, such as selling a primary residence for a profit or earning gains through tax-sheltered avenues like RRSPs or RESPs, are exempt from taxable capital gains.
Currently, only 50% of capital gains are subject to taxation. The proposed adjustment in the 2024 budget aims to increase the “inclusion rate” from half to two-thirds for capital gains exceeding $250,000 for individuals. This means that while the first $250,000 in gains remain taxed at 50%, any amount beyond that threshold would be taxed at a two-thirds rate.
Corporations and trusts would also face the two-thirds tax rate on all capital gains under the proposed changes, set to take effect on June 25.
The $250,000 threshold for individuals is based on government data, indicating that the vast majority of Canadians, around 28.5 million, are not projected to have any capital gains income. Only 0.13% of Canadians, with an average income of approximately $1.4 million annually, are expected to experience an increase in personal income tax due to this alteration.
The 2024 budget maintains the exemption for capital gains on the sale of a main residence and extends the lifetime capital gains tax exemption for small business shares, farming, and fishing property. The exemption is set to increase to $1.25 million and will be adjusted for inflation in the future.
However, individuals who receive gifted or inherited properties and later sell them may encounter the higher capital gains tax rate, subject to the profit margin and the property’s use as a primary residence.
