Question of the week, 6.13.24

Question of the week: “What am I going to do after June 25th?if I have investments inside my corporation? How do I address that I am going to have to pay more tax?"

The Capital Gains?Inclusion?Rate?in Canada will be increased from 50% to 67% effective for dispositions on and after June 25, 2024.?

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.?

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

What can you potentially do?

• 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.
• Buy a life?insurance policy where the corporation is the owner and beneficiary. This allows you to extract funds from the taxable pool so they grow on a tax-free basis to fund your retirement.

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Please 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#