Proposed Tax Revisions by the Canadian Government: Implications for Your Investments
09 May 2024
In its recent budget announcement, the Canadian government unveiled changes regarding the tax treatment of capital gains.
Capital gains refer to the profits made from selling an asset or investment at a price higher than its initial cost. For instance, if a client purchases a cottage for $400,000 and sells it two years later for $500,000, they realize a capital gain of $100,000. Conversely, a capital loss occurs when the proceeds from the sale are less than the purchase price.
These gains or losses can arise from various types of investments and assets, such as stocks, bonds, mutual fund shares, rental properties, secondary residences, or even business assets. However, it's worth noting that capital gains and losses do not apply to a primary residence.
Currently, in Canada, capital gains are taxable, but only a portion of their value is included in taxable income. Presently, only half of the capital gain is included in taxable income. For example, if a client realizes a $100,000 gain from selling a cottage, only $50,000 will be added to their taxable income for the year.
The budget proposes changes to the taxation of capital gains, adjusting the inclusion rates. Corporations and trusts would see their inclusion rate increase from 50% to 66.67%. Similarly, for individuals realizing gains over $250,000, the inclusion rate would also rise to 66.67%. However, for those whose gains remain below this threshold, the inclusion rate would stay at 50%.
These changes would affect all corporations and trusts, as well as individuals realizing capital gains of $250,000 or more. This will impact your clients who are selling secondary residences such as cottages or rental properties, as well as in the case of multiplex properties.
If the budget is passed, these revisions will take effect on June 25, 2024. It's worth noting that the Quebec government announced shortly afterward its intention to implement similar tax policies for provincial income tax.
Keywords: Canadian government budget, tax revisions, capital gains, inclusion rates, investments, clients, secondary residences, multiplex properties, Quebec, fiscal policy, income tax.
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