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Recent Changes in Canada's Capital Gains Inclusion Rate (2024)

Writer's picture: Keung Heul KimKeung Heul Kim

Updated: Oct 20, 2024





As of June 2024, Canada has implemented notable changes to its capital gains tax rules, directly impacting individuals, trusts, and corporations. This shift, introduced in the 2024 federal budget, marks a significant alteration to how Canadians report and pay taxes on capital gains.


What Is the Capital Gains Inclusion Rate?

The capital gains inclusion rate dictates the percentage of a capital gain that must be included in taxable income. Historically, Canada’s inclusion rate stood at 50%, meaning that only half of any capital gain was subject to income tax.


The New Changes: What’s Different?

Beginning June 25, 2024, the federal government increased the capital gains inclusion rate to 66.7% for gains exceeding $250,000 within a calendar year. This represents a substantial shift, especially for high-earning individuals, corporations, and trusts. Gains of less than $250,000 in a year will still be taxed at the 50% rate, preserving some tax relief for smaller transactions.

This change means that individuals and corporations alike will see a larger portion of their gains taxed, which can lead to significantly higher tax bills, particularly for those who frequently realize large gains, such as business owners or investors.


Impacts for Corporations

Corporations face heightened tax burdens on capital gains under the new rules. For instance, if a professional corporation in Ontario realizes a $100,000 capital gain, the new inclusion rate will result in about a 7-10% increase in income tax payable on the gain. This can reduce the available funds for dividends and increase the personal tax obligations of business owners who depend on dividends for income.


Individuals and the $250,000 Threshold

For individuals, the first $250,000 of capital gains remains at the 50% inclusion rate, providing some continuity. However, for gains exceeding that threshold, the inclusion rate rises to 66.7%, leading to a more substantial tax burden. This can be especially impactful for professionals who sell high-value assets such as real estate or business shares​


For example, if an Ontario lawyer sells a property with a $1 million capital gain, they will face an additional tax liability of about $66,912 under the new rules compared to pre-June 2024​.


Planning Ahead

These changes underscore the importance of strategic tax planning, especially for high-net-worth individuals and corporations. Proper timing of asset sales and gains may help mitigate the increased tax impact.

With these changes now in place, it’s essential to consult with tax professionals to explore strategies that can reduce the overall tax burden, such as deferring gains or using deductions effectively.

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