Canadian Government to Increase Capital Gains Inclusion Rate to 66% from 50%

Canadian Government to Increase Capital Gains Inclusion Rate to 66% from 50%
May 14, 2024

The recent Federal Budget 2024 proposes changes to capital gains taxes in Canada, which may impact real estate investors.

Here's a breakdown of the key points:

Increase in Capital Gains Inclusion Rate

  • Currently, only 50% of capital gains on qualifying assets exceeding $250,000 are subject to tax. This will increase to 66% for individuals and corporations/trusts.
  • This change applies to dispositions occurring after June 25, 2024.

Let's say you bought a house for $500,000 and sell it for $800,000 after June 25th, 2024. Your capital gain would be $300,000 ($800,000 selling price - $500,000 purchase price).

Under the old rule, only half of this amount ($150,000) would be subject to tax. But under the new rule, 66% of your capital gain ($198,000) would be taxable.

Increased Lifetime Capital Gains Exemption

  • The good news is the tax-free capital gains exemption is rising from $1,016,836 to $1.25 million, effective June 25, 2024.
  • This exemption applies to the sale of qualified small business shares and farming/fishing property.
  • This amount will be further adjusted for inflation going forward.

Principal Residence Exemption Remains

  • The essential exemption for selling your primary residence remains unchanged. You won't pay capital gains tax on the sale of your principal home.

Canadian Entrepreneurs' Incentive (CEI)

  • A new program called the Canadian Entrepreneurs' Incentive (CEI) is being introduced.
  • This program offers a reduced capital gains inclusion rate of 33.3% on a lifetime maximum of $2 million in eligible capital gains.
  • When combined with the increased lifetime exemption, this offers entrepreneurs significant tax relief when selling a business (potentially up to $3.25 million tax-free).

Impact on Real Estate Investors

  • Real estate investors who frequently buy and sell properties will likely see a tax increase due to the higher capital gains inclusion rate.
  • Holding onto investment properties for a longer term may become more attractive from a tax perspective.
  • Investors planning to sell properties should consult with a tax advisor to understand the potential impact of these changes.

Coldwell Banker Horizon Realty can Help

Our team of experienced real estate professionals can help you navigate the complexities of the Canadian real estate market, including the impact of tax changes. We can provide insights on investment strategies and connect you with qualified tax advisors for personalized guidance.

Source: Gov of Canada

Disclaimer: This is intended for informational purposes only and should not be construed as tax advice. Please consult with a qualified tax professional for your specific situation.

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