Capital Gains Change Postponed Until 2026
It is now official. The capital gains change to the inclusion rate (1/2 to 2/3) will not occur until 2026. That is of course subject to the Liberals, not the Conservatives, winning the next election or it may not happen at all.
In addition, the increase to the capital gains exemption will be raised to $1,250,000 from June 25, 2024.
The new Canadian Entrepreneurs’ Incentive will also proceed from 2025 onward as announced. The inclusion rate will be 1/3 on up to $400,000 of eligible capital gains.
None of this is law and a new bill would have to be introduced. So we are not done with the “capital gains chaos” but at least some clarity is emerging.
Clarity From Chaos
What is clear is that tax returns can now be filed for 2024 at the 1/2 inclusion rate. Capital dividend elections can proceed and regular tax planning can be carried out with the old rules of thumb. For how long, nobody knows but at least for this year.
3 Strikes
This is the third strike for tax changes being reversed. Recall the Underused Housing Tax filings, postponed with an announcement literally on the April 30 due date. Next was bare trusts, with reporting abandoned for last year with 5 days to go. Now this.
Some Work Still To Do
Last year in April to June, people reacted to the capital gains change in many ways.
Most people will now prefer to not have a capital gain, where the planning allows for this. But our work is not over. For people using rollovers, there is still paperwork to do and possibly some decisions yet to be made.
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Beware The AMT
For individuals and trusts realizing capital gains in 2024, beware the new alternate minimum tax (AMT). This could increase the personal tax by up to 5%. Although AMT is potentially recoverable over 7 years, people will of course prefer not to pay it in the first place.
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A Rough Year
2024 has been a challenging year. First the new trust reporting, then the capital gains saga. What doesn’t kill you makes you stronger. Looking back, we are not sure this is quite true.
New Programs
Watch for an announcement on two new programs to be offered in March.
Trusts have come under the spotlight with the new disclosure rules (Schedule 15). Will CRA start a project to look more closely at trusts? Who knows. But before you get a letter or questionnaire, it would be good to know what problems might exist. This new 2-hour program looks at the common problems that can arise and how to possibly fix them.
There has been renewed interest in Canadian businesses setting up in the US. Lower taxes and the threat of tariffs have created a need to evaluate a US strategy. Many people are unable to answer even basic questions about the tax issues, form of business entity, where to locate, etc. This 2-hour program will provide a solid basic knowledge when clients ask these questions.
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Press Release on Capital Gains:
Regards,
Cadesky Tax