The 2024 Federal Budget proposes increasing the capital gains inclusion rate for dispositions occurring on or after June 25, 2024. The inclusion rate increase will apply to individuals, corporations and trusts.
Draft legislation has yet to be introduced, so there is still much uncertainty surrounding these proposed changes, but tax planning should be considered now to mitigate the adverse tax implications.
Impact on Individuals:
– Individuals will maintain the current 50% inclusion rate on the first $250,000 of capital gains realized in a year. Beyond that threshold, the inclusion rate increases to 66.67%.
– For instance, if an individual realizes $300,000 in capital gains in a year, the total resulting taxable income inclusion would be $158,333:
- First, $250,000 would be subject to a 50% inclusion rate, so $125,000 of taxable income; and
- The remaining $50,000 would be subject to a 66.67% inclusion rate, $33,333 of taxable income.
The taxable income inclusion would have been $150,000 under existing rules, so an additional $8,333 would be added to taxable income compared to the existing rules.
Impact on Corporations and Trusts:
– The new 66.67% inclusion rate applies to all capital gains realized by corporations and trusts.
– For instance, if a company realizes $300,000 in capital gains in a year, the total resulting taxable income inclusion would be $200,000 ($300,000 subject to the 66.67% inclusion rate).
The taxable income inclusion would have been $150,000 under existing rules, so an additional $50,000 would be added to taxable income compared to the existing rules.
Who Will Be Affected?
The proposed changes would primarily impact:
– Taxpayers with real estate (rental properties, vacation properties)
– Taxpayers with marketable securities/investments
– Estates / deceased taxpayers
– High-income earners and business owners/incorporated professionals
Tax Planning to Consider:
– Triggering Capital Gains before June 25, 2024: Selling assets before June 25, 2024 can capitalize on the current lower inclusion rate, although there may be drawbacks like triggering alternative minimum tax or facing full taxation under the residential property flipping rule or OAS clawback.
– Estate and Succession Planning: It’s crucial to update estate and succession plans to adapt to potential future tax increases, possibly involving asset transfers or restructuring. Reviewing life insurance plans to accommodate higher capital gains taxation upon a shareholder’s death is also important.
– Revisit Corporate Investing: Corporations may benefit from selling assets before June 25th to bolster their Capital Dividend Account and utilize other beneficial tax balances within a company, allowing for tax-efficient and tax-free withdrawals.
If you have additional questions, please don’t hesitate to contact us at info@cahillcpa.ca or call (604)985-0123.