Changes To The Canadian Capital Gains Tax

This summary is for informational purposes only and should not be considered tax or legal advice. Always consult a qualified professional before making financial decisions based on this information.

Key Federal Budget Capital Gains Measures

• Change:
  • Effective June 25, 2024, the capital gains inclusion rate will increase from 50% to 66.67% for trusts and corporations. For individuals, this higher inclusion rate applies only to annual capital gains exceeding $250,000. The 50% inclusion rate will continue for gains below this threshold.
• Current Law:
  • Currently, half of a capital gain is included in computing a taxpayer’s income, which also applies to capital losses.
• Impact:
  • A higher portion of capital gains will be subject to income tax, increasing the tax burden on real estate investments, property sales, and capital gains within corporations (e.g., personal real estate corporations).
  • Gains on Canadian residential property held for less than one year may be deemed business income (100% taxable) under the residential property flipping rule, unless an exception is met.

Increase to Lifetime Capital Gains Exemption (LCGE) for Entrepreneurs

• Change:
  • The LCGE will rise to $1.25 million (from $1.016 million) for eligible capital gains, effective June 25, 2024.
• Impact:
  • For those selling shares of qualified small business corporations (QSBC) or qualified farm and fishing property (QFFP), the increase in LCGE to $1.25 million will be beneficial.

Alternative Minimum Tax (AMT) Adjustments

• Change:
  • Continued adjustments to AMT rules to align with changes in regular income tax calculations.
  • The AMT allows fewer tax credits, deductions, and exemptions than ordinary personal income tax rules.
  • Taxpayers pay the higher of regular tax or AMT.
• Impact:
  • AMT considerations become crucial for planning capital gains realization and charitable contributions, influencing tax planning strategies.

Canadian Entrepreneurs’ Incentive

• Introduction:
  • A new initiative beginning in 2025 reduces the capital gains tax rate to one-third on up to $2 million of qualifying shares.
  • This incentive provides a capital gains inclusion rate of half the prevailing rate on up to $2 million in capital gains per individual over their lifetime.
  • Impact:
    While not applicable to professional corporations, this incentive promotes entrepreneurship by lowering the tax burden on qualifying share sales.

Strategic Planning Considerations

• Immediate Action: Evaluate the potential benefits of realizing capital gains before June 25, 2024, to optimize tax efficiency under current rates.
• Consultation: Engage with a tax advisor to navigate these changes effectively and tailor strategies to your specific financial situation.
• Long-term Planning: Assess the implications for retirement planning, estate management, and future investment decisions in light of these regulatory adjustments.

As Budget 2024 reshapes tax policies affecting real estate professionals and their clients, proactive planning becomes paramount. This overview is a high-level summary, and TRREB strongly encourages all members to seek expert professional advice to safeguard their financial interests amidst these evolving fiscal landscapes.

See More Information at the Government of Canada Website!