Capital Gains - Should I sell or should I hold?

Simplifying Tax Newsletter - Edition 1.2

Should you realize capital gains before June 25, 2024, in order to capitalize on the favourable 50% inclusion rate?

If you anticipate total capital gains in future years below $250,000 annually, there's no urgency to trigger gains before June 25, as the 50% inclusion rate remains advantageous.

However, if future capital gains are expected to exceed $250,000 annually, or if gains are anticipated within a corporate entity, it's prudent to contemplate selling capital assets before June 25.

This decision hinges on whether the projected future returns from the asset exceed the additional tax incurred upon its later sale.

The chart below shows the number of years it would take to reach the breakeven point using various growth rates:

When deciding whether to sell capital property personally or in a corporation before June 25, 2024, keep these points in mind:

(1) You’d only need to consider triggering capital gains before June 25 if you expect to realize more than $250,000 of total capital gains in a year after June 25, or if the gains are earned in a corporation.

(2) Consider selling any capital property before June 25 if you think you’ll ultimately sell it before the break even point, when future earnings on the property will equal the increase in tax when you later sell it.

(3) If the property earns only capital gains, you’d reach the breakeven point when the amount of the current capital gain increases by roughly 50%.

(4) You should consult a tax adviser for further analysis before crystalizing any capital gains. This is particularly important if capital gains will be distributed from a corporation, or if you could be subject to Alternative Minimum Tax (as discussed below) since the analysis is more complicated.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.