Federal Budget 2024
This is not a new tax.
You’ve always had to pay capital gains when you sell investments (e.g., cottages, secondary properties, businesses, stocks, etc.)
We adjusted the rate to be more in line with other taxes, such as the tax on dividends.
This does NOT affect you if you are selling your home (i.e., your principal residence).
It only affects people who sell investments; and the change affects only those people with more than $250,000 capital gains, or profit, in a year.
In a typical year this mean 0.13 per cent of Canadians (about 40-50,000 Canadians).
The capital gains tax is not a new tax.
This policy change does not impact income tax rates. It does not impact dividend rates. It only impacts capital gains (i.e., profits earned on the sale of an asset which has increased in value over the holding period) and it does not apply to principal residences. For example, if you sell your cottage and earn more from the sale than what you originally paid for the property, that is a capital gain.
Your first $250,000 per year in capital gains continue to be taxed the same way.
The only thing that changes is the percentage of your profits over $250,000 that will be taxed. This is called the inclusion rate. For profits over $250,000, the inclusion rate is increasing from 50% to 67% of capital gains.
Example: If your capital gains equal $280,000, 50% of 250,000, or $125,000, will be subject to capital gains tax. The remaining $30,000 will be subject to the higher inclusion rate. Prior to Budget 2024, an additional $15,000 would have been taxed at your marginal income tax rate for a total of $140,000. Under Budget 2024 proposed changes, an additional $20,000 will be taxed at your marginal income tax rate, for a total of $145,000. In total, only $5,000 more will be subject to the capital gains tax.
Primary residences are not impacted by this policy change.
This change does not impact principal residences. If you are selling your primary residence, there is no impact. For families with more than one property, they can choose which property is their principal residence.
An inclusion rate of 66.7% is not unheard of.
Over the past 30 years, Canada’s capital gains inclusion rate has fluctuated between 50% and 75%. For example, in 1998, the inclusion rate was 66.67%. In 1990, the inclusion rate was further raised to 75%.
See chart below for capital gains tax between 1985 and today.
Lifetime Capital Gains Exemption for business owners and Canadian Entrepreneurs’ Incentive have increased.
We are making business owners better off when they sell part or all of their business. We are increasing the Lifetime Capital Gains Exemption to $1.25 million (indexed to inflation) – making owners better off on up to $2.25 million in capital gains.
Our government is also bringing in a new Canadian Entrepreneurs’ Incentive (33.3% inclusion rate on up to $2 million of eligible shares when fully rolled out). When rolled out, business owners will be better off on up to $6.25 million in capital gains.
There are various benefits to saving within a corporation for retirement and these advantages are not available to the general public. Despite the change to the inclusion rate, many of these advantages persist.