Budget 2024 was an interesting one and it made June 25th very interesting for taxpayers.

June 25th is the day when how Capital Gains are taxed in Canada. What does it mean to you? I thought I would share some thoughts to help clear up the noise in the system.

A Capital Gain is created when you sell a capital asset. This can include a property, investments such as a share of publicly traded company, or a share in a small business. When you sell the asset, the difference between what you sell it for and what you paid for it is a Capital Gain.

Until June 25th, 50% of the capital gain is included in your income and taxed based on your tax rate. Personally, your tax rate depends on your income level, so it can range anywhere between nil and 53% in New Brunswick. If you have a capital gain in a corporation, the tax rate would be 53%.

After June 25th, 66% of the capital gain will be included in income for tax purposes. For individuals, there is some relief in that the first $250,000 of a capital gain will still be included in income at 50%, so if the gain is under $250,000 then how it is taxed has not changed. The exemption is not available for corporations, so after June 25th, 66% of the capital gain will be included in the Corporation’s income.

This is a significant change when it comes to Income Taxes.

For individuals, the $250,000 threshold does provide some shelter from the new rules, however, if in a situation with a capital gain larger than $250,000 to need to chat with a Tax Advisor/Accountant. I can see the changes in Capital Gain income inclusion effecting Estates. Careful consideration and planning will be needed with Estates.

For Corporations, the change will have immediate impact after June 25th and it changes the playing field when it comes to taxation of Capital Gains.

This change does not effect your Personal Residence. Your Personal Residence is a capital asset, and it would create a capital gain if sold, however there is the Principal Residence Exemption which shelters the Capital Gain on the sale of your Principal Residence. There are also new rules around the Principal Residence Exemption, the most important rule is that you have lived in the residence for at least 18 month.

In closing, how Capital Gains are taxed is changing effective June 25th. I always recommend when making a big decision such as selling an asset such as a property, you should always chat with your Tax Advisor/Accountant before finalizing the decision to ensure that you maximize the value that you retain on the transaction. This recommendation becomes more important leading up to and after June 25th.

Until next time,