Increase Of The Capital Gain Inclusion Rate - Capital Gains Tax

On April 16, 2024, the Minister of Finance presented the Government of Canada's 2024 Federal Budget (“Budget 2024”). Significant proposals and updates include increasing the capital gains inclusion rate for corporations, trusts and individuals.

Currently, 50% of a capital gain (and 50% of a capital loss) is included in computing a taxpayer's income. For capital gains and losses realized on or after June 25, 2024, Budget 2024 proposes to increase such rate:

from 50% to 66.7% for all corporations and trusts; and
from 50% to 66.7% for individuals, but only with respect to the portion of capital gains or losses realized annually that exceed $250,000.

In other words, the inclusion rate will continue to be 50% for capital gains or losses up to $250,000 realized annually by individuals (including through trusts or partnerships). The $250,000 threshold would be fully available in 2024 (i.e., it would not be prorated) and would apply only in respect of capital gains or losses realized on or after June 25, 2024.

On April 18, 2024, the Government of Québec announced its intention to amend Québec's tax legislation and regulations to incorporate equivalent measures.

Accordingly, individuals should consider whether they wish to realize capital gains prior to June 25, 2024, in order to access the 50% rate rather than be subject to the 66.7% rate. For example, consideration should be given to choosing not claim an otherwise available capital gain reserve in a taxpayer's 2023 income tax return. Moreover, individuals should consider whether they wish to realize $250,000 in capital gains annually from 2024 onwards in order to benefit from the 50% rate rather than being subject to the 66.7% rate.

Fasken's corporate and tax law teams can assist you in minimizing the impact of these newly announced measures. Considering the fast-approaching June 24^th deadline, please keep in mind the time required for the implementation and execution of any reorganization relating to the new rules. Contact us as soon as possible if you need assistance in reviewing and assessing your situation or if you are interested in implementing such a reorganization.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.