Unlock the Key Changes in Canada's Capital Gains Tax Law

The recent changes to the capital gains tax in Canada involve adjustments to the inclusion rate and taxation thresholds.

The inclusion rate represents the taxable percentage of the gain. Since 2001, the inclusion rate in Canada has been 50%, meaning that only half of the capital gain was subject to tax. The recent changes have increased this inclusion rate from 50% to 66.67%.

1. The inclusion rate for individuals' capital gains over $250,000 annually will increase from 50% to 66.67%. This means two-thirds of the capital gains over this threshold will be taxable. For capital gains up to $250,000, the current 50% inclusion rate remains unchanged.

• The threshold of $250,000 for individuals applies annually and cannot be combined or carried over. It will not be divided for 2024.
• The threshold is strictly for individual taxpayers and cannot be shared with the corporations they own.?

2.???? All capital gains for corporations and most trusts will be subject to the new 66.67% inclusion rate.

Example Scenarios:?

1. Before the Change:

• Suppose you sell an asset for a profit of CAD 10,000.
• With a 50% inclusion rate, CAD 5,000 (50% of the gain) would be added to your taxable income.

2. After the Change:

• Assume the inclusion rate is increased to 2/3rd.
• With a 66.67% inclusion rate, CAD 6,666 (2/3rd of the gain) would be added to your taxable income.

3. If an individual realizes $400,000 in capital gains in a year:

• The first $250,000 will be taxed at the current 50% inclusion rate, resulting in $125,000 of taxable capital gains.
• The remaining $150,000 will be taxed at the new 66.67% inclusion rate, resulting in $100,005 of taxable capital gains.
• Therefore, the total taxable capital gain for the year will be $225,005.

Additional Considerations

• Some exemptions, such as the principal residence exemption, remain in place. This means that gains on selling your primary home are generally exempt from capital gains tax.
• RRSP and TFSA: Investments held within registered accounts like RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax-Free Savings Accounts) continue to be sheltered from capital gains tax.

The tax thresholds have been adjusted to account for inflation and changes in economic conditions. These updates are designed to raise tax revenue from capital gains and promote a more equitable distribution of the tax burden. The changes specifically target higher-income individuals more likely to experience substantial capital gains.

To better understand how these changes could affect your tax situation, we encourage you to consult with our experienced tax professionals at Fernandez Young LLP, CPA.

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