3 Second Tips for Vancouver Business Owners – April 2024

The Capital Gains Inclusion Rate in Canada will be increased from 50% to 67% effective for dispositions on and after June 25, 2024?(subject to the Federal Budget being ratified).?

Before we launch into it, let’s take a moment to clarify what some terms mean.

Capital Gains:

The value of an asset above the cost at which you purchased the asset. This is?subject to any recaptured depreciation (in the case of a rental property or business building).

Recaptured depreciation: Depreciation lowers the income you pay, hence reducing income tax. It also reduces the cost basis of the asset. This depreciation expense is taxed at the ordinary income tax rate if you sell that asset at a gain.

Inclusion rate:

The portion of an asset’s gain that is taxable

Dispositions:

The sale or disposal of an asset

In other words…

Historically, capital gains have been 50% tax free when you sell something that triggers a gain.?Under the new budget,?personal gains?will not change for the first $250,000 of gains. However, under the proposed tax code modifications, gains will be only 33.3% tax free for?businesses and corporations?in Canada. This will increase the burden of capital gains tax for these entities.?

Please note, these changes are predicated on the budget being passed by Parliament. Our analysis below is entirely hypothetical; we recommend waiting?for?the budget?to be?passed, and if you have any questions at any point about how this may apply to you or your business, ask a tax professional.

Why it matters for Canadian business owners

This has a tremendous impact for anyone selling a business in Vancouver, and in all of Canada.

• Anyone who plans to sell a business at some point should project out well in advance what their anticipated gains rate would be. It may be useful to realize the transaction in parts, as opposed to all at once, to spread the capital gain impact over multiple years.
• Where a donation makes sense and is desired, it should be considered.?Remember, gifting shares with deferred capital gains is better to do than a cash charitable gift. This is because gifting shares with deferred capital gains avoids paying tax on that capital gain, in addition to getting a full charitable receipt for the value of the shares.
• Capital losses may be netted against a gain
• The Lifetime Capital Gains Exemption may apply to some small business owners. This?will be increased to $1,250,000 from $1,016,836, as proposed in the budget.

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As a note, we are not tax advisors and nothing mentioned in this newsletter may be interpreted as advice specific to any one individual. For recommendations that pertain to your specific situation, consult a tax advisor or financial advisor.

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Sources

Chartered Professional Accountants Canada, 2024 Federal Budget Tax Highlights

Tuovila, Alicia. (2023, July 20th). Investopedia. Depreciation Recapture: Definition, Calculation, and Examples.?https://www.investopedia.com/terms/d/depreciationrecapture.asp#