Changes to Capital Gains Rules for 2024
July 24th, 2024
Posted in: Tax
The Government of Canada recently announced changes to Capital Gains rules for 2024. Here’s what you need to know.
According to the Government website “Starting June 25, 2024, the capital gains inclusion rate will be increased from one-half to two-thirds for capital gains of over $250,000 per year for Canadians, and on all capital gains for corporations and most types of trusts.”
When Canadians sell an asset for a profit, this is called a capital gain (the house you live in is excluded from capital gains if you sell it for a profit). The amount of your profit (capital gain) that will be taxed is called the capital gains inclusion rate—taxing none of it would be a 0% inclusion rate; taxing all of it would be a 100% inclusion rate.
The Canadian government used to tax 50% of your capital gains if you sold an asset for a profit. For example, if you had a rental property and you sold it for a $300,000 profit, you would be taxed on half of the profit or $150,000. This amount, $150,000, would be added to your total income for the year and taxed accordingly.
How to Calculate the New Tax Rate
After the changes that take effect June 25, 2024, the first $250,000 of profit is still taxed at 50%. Anything over the $250,000 profit will be taxed at the new rate of 66%. For our example of selling a rental property:
$300,000 total profit for the sale of your rental property.
First $250,000:
$250,000 taxed at 50%: $125,000 x 50% = $62,500 added to your income and taxed at your regular rates.
The other $50,000:
$50,000 x 66% = $33,000 added to your income and taxed at regular rates.
So once you’ve sold your rental property for $300,000 profit, you will have $62,500 + $33,000 = $95,500 income added to your total income for the tax year. That still leaves you with $300,000 - $95,500 = $204,500 profit free and clear from taxation.
This video nicely explains these upcoming changes.
These changes can be quite complicated and difficult to understand. Shaw & Associates would love to sit down with you and go over how these changes could affect your financial planning.
Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.