The Federal Government announced their 2024 budget this week which made some changes to the Capital Gain Inclusion Rate.
What is a capital gain? It is the difference between the assets cost & total sale prices. Typical assets include rental/investment properties, cottages and mutual funds/stocks. So if you bought a rental property for $500,000 and when you sold it you sold it for $800,000 your capital gain is $300,000.
How are capital gains taxed?
Today, you are taxed on 50% of the capital gains. So, in the case of the capital gain on the cottage of $300,000, you would be taxed as if you made $150,000 (50% of $300,000). The amount of tax you would pay is dependent on your tax rate.
What is changing:
The 2024 budget is increasing the inclusion rate to for 50% to 66.66% on capital gains over $250,000 for individuals. So for the first $250,000 in capital gains, an individual taxpayer would continue to pay tax on 50 per cent of the gain (just as we outlined above). For every dollar over $250,000, it will be taxed at 66.66%.
So for the person that received $300,000 in capital gains from the sale of their condo, $250,000 would be taxed at 50% ($125,000) and the additional $50,000 would be taxed at 66.66% ($33,333)
The budget proposes to tax all capital gains earned by corporations and trusts at the 66.66% rate, as opposed to 50%
This is definitely a big change for anyone holding real estate rentals or cottages and those that have investments.
What are your thoughts on the change?