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The federal government moves to raise capital gains taxes

Apr 18, 2024 | Featured, Business

In the Federal Budget 2024, tabled by Canada’s Liberal government on Tuesday, April 16, intentions were made clear to raise taxes to help fund increased spending. One of the answers to cover increased spending (on housing affordability, increased productivity, bigger defense spending), would see an increase in the inclusion rate for capital gains realized by trusts, corporations and high-income individuals.

This tax raise is among the measures aimed at offsetting the $46 billion in new spending measures announced in the budget. The announced spending is intended to increase housing supply, support AI development and increase defense spending. New changes to Canada’s tax system are expected to generate $21.9 billion in additional revenue over five years, according to the budget.

The government intends to increase the inclusion rate for capital gains from one-half to two-thirds on gains realized annually above $250,000 by individuals, effective June 25, 2024. The inclusion rate for capital gains realized annually up to $250,000 by individuals will continue to be one-half.

John Oakey, the VP of taxation at CPA Canada, said in an interview with Tuesday some may try to solidify gains while they can under the current rules.

“It will probably result in some planning to try to determine if corporations, businesses or even individuals want to trigger any of their capital gains in anticipation of the June 25 date and do it prematurely to try to get under the 50 per cent inclusion rate instead the two thirds,” he said.

The Department of Finance said that middle-class Canadians will continue to benefit from various exemptions. This includes the $250,000 annual threshold, tax-free savings accounts (TFSAs), the principal residence exemption as well as exemptions for registered pension plans.

An example of how the new rules might apply was provided by the Department of Finance. For instance, if a high-income earner in Ontario had a $400,000 salary and gained $300,000 from selling a second property, they would only pay income tax on 50 per cent of that gain under the current rules. However, under the proposed rules for 2025, that same person would see their marginal tax rate be applied to $158,333 (rather than $150,000).
The focus here would be targeting the wealthiest in society.

However, John Oakey of CPA Canada said that some middle-class individuals may be impacted when “one-time events occur.”

“So if somebody passes away…That could be a one-time event where there’s enough capital gains collectively to push you above the $250,000 threshold,” Oakey said.

He highlighted that other “one-time” events could include things like disposing of assets while immigrating or selling a business.

Although this measure won’t impact the middle class on a regular basis, there can still be one-time events that push people in the middle class above that threshold, resulting in a higher tax rate,” Oakey said.

Michael Zienchuk, MBA, CIM
Investment Advisor, Credential Securities Inc.
Manager, Wealth Strategies Group
Ukrainian Credit Union
416-763-5575 x204
[email protected]

Mutual funds and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently, and past performance may not be repeated. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities. The views expressed are those of the author and not necessarily those of Credential Securities Inc. Credential is a registered mark owned by Credential Financial Inc. and is used under license. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund.

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