Changes to Capital Gains Taxation

The commitment to tax fairness for Canadians is taking a significant step forward. Today, Canadians pay taxes on their job income, while only half of capital gains are taxable. However, a transformative motion has been tabled in Parliament by the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, to enhance tax fairness through capital gains taxation amendments, as outlined in Budget 2024.

Effective June 25, 2024, the capital gains inclusion rate will rise from 50% to 66.67% on yearly capital gains surpassing $250,000 for individuals and on all corporate and most trust capital gains. This move aims to bolster Canada's tax system, generating $19.4 billion over five years for crucial investments, including the construction of nearly 4 million new homes, cost-of-living reductions, and economic growth, particularly benefiting Millennials and Gen Z.

To shield most middle-class Canadians and entrepreneurs from increased taxes, existing capital gains exemptions will persist, supplemented by new provisions:

• Principal Residence Exemption Continuation: Selling your home remains capital gains tax-free.
• $250,000 Annual Threshold: Effective June 25, 2024, modest capital gains will benefit from a 50% inclusion rate, ensuring couples selling secondary properties like cottages with a $500,000 gain won't incur extra tax.
• Increased Lifetime Capital Gains Exemption: Raised to $1.25 million from $1,016,836, this exemption applies to small business shares and farming/fishing property sales, offering tax relief to eligible Canadians with gains under $2.25 million.
• Canadian Entrepreneurs' Incentive: The inclusion rate will drop to one-third on up to $2 million in eligible capital gains, alongside the enhanced lifetime exemption, providing tax advantages on gains up to $6.25 million.

These changes aim to rectify disparities in the tax treatment of capital gains and wage income. Currently, affluent individuals may face lower tax rates on capital gains than the middle class on their earnings. Budget 2024 underscores the government's commitment to a fairer Canada, ensuring prosperity across generations by asking the wealthiest to contribute their fair share.

Source: Canada Revenue Agency

https://www.canada.ca/en/department-finance/news/2024/06/government-of-canada-delivering-tax-fairness-for-every-generation.html