Major Changes to Capital Gains Taxation in Canada
On September 23, 2024, the Deputy Prime Minister and Minister of Finance introduced proposed amendments to the Income Tax Act and Regulations, which significantly increase the capital gains inclusion rate. Although these changes are still subject to parliamentary approval, the Canada Revenue Agency (CRA) has already begun administering them, effective June 25, 2024.
If you’re an individual investor, business owner, or corporation, these new tax rules could increase your tax burden significantly. Understanding the details is essential for strategic financial planning.
What’s Changing?
1. Increase in Capital Gains Inclusion Rate
After June 25, 2024: The taxable portion of capital gains increases to 66.67% (two-thirds) for certain taxpayers.
Before June 25, 2024: Only 50% of capital gains were taxable.
2. Who Is Affected?
| Taxpayer Type | New Inclusion Rate |
| Individuals (on annual gains above $250,000) | 66.67% (previously 50%) |
| Corporations | 66.67% (previously 50%) |
| Trusts | 66.67% (previously 50%) |
| Individuals (up to $250,000 in capital gains per year) | 50% remains unchanged |
3. When Does It Take Effect?
- Applies to capital gains realized on or after June 25, 2024.
- New CRA tax forms for individuals, trusts, and corporations will be available by January 31, 2025.
- Filing relief and interest waivers for some affected businesses will expire on March 3, 2025.
How Will This Impact You?
Impact on Individuals
🔹Selling Investments (Stocks, Real Estate, etc.)
- If your total annual capital gains exceed $250,000, the portion above this threshold is taxed at 66.67%, instead of 50%.
- Example: If you realize $300,000 in capital gains, the first $250,000 is taxed at 50%, while the remaining $50,000 is taxed at 66.67%.
🔹Estate and Succession Planning
- Higher tax liabilities for heirs receiving capital property.
- Estate planning strategies, such as trusts and capital gains exemptions, will need to be reassessed.
🔹RRSPs, TFSAs, and Principal Residences
- RRSPs – are not impacted.
- TFSAs – gains remain tax-sheltered and are not impacted.
- Principal Residence – gains remain fully tax-exempt.
Impact on Businesses and Corporations
🔹Higher Tax on Business Asset Sales
- Selling a business or investment property now attracts a higher tax rate.
- Example: A corporation selling assets with a $1M capital gain will now pay tax on $666,700, compared to $500,000 previously.
🔹Changes to Corporate Tax Strategies
- Businesses may need to restructure holdings, defer sales, or use capital losses to offset gains.
- Alternative tax-efficient structures (e.g., holding companies) may be explored to reduce tax burdens.
🔹Impact on Family Trusts and Investment Companies
- Trusts will also be subject to the new 66.67% inclusion rate, meaning family succession and wealth preservation strategies should be revisited.
What Should You Do?
🔹 Review Your Investments & Business Sale Plans – If you have realized capital gains after June 25, 2024, ensure that your tax strategy accounts for the new 66.67% inclusion rate on applicable amounts. Moving forward, consider options for asset disposal strategically to manage tax exposure.
🔹 Optimize Estate & Succession Planning – With higher taxes on capital gains, estate plans should be reviewed to incorporate spousal rollovers, family trusts, or estate freezes to minimize liabilities.
🔹 Implement Corporate Tax Planning Strategies – Businesses should assess their investment holdings, asset disposal plans, and tax-efficient structuring to mitigate the increased tax burden. Options such as capital gains deferral, corporate reorganizations, and holding companies should be explored.
How Looknauth CPA Can Help
At Looknauth CPA Professional Corporation, we provide expert tax planning strategies to minimize your tax exposure and maximize your financial success. Our services include:
✔ Capital Gains Tax Optimization – Strategies to minimize tax on investment and business sales.
✔ Business Tax Planning – Corporate restructuring and tax-efficient asset management.
✔ Estate & Succession Planning – Ensuring tax-efficient wealth transfer to future generations.
Contact us today to discuss how these tax changes affect you and how we can help you navigate them effectively!
📞 Call us at 416-450-1549
📩 Email us at info@looknauthcpa.com
