Canadians are preparing for controversial changes to capital gains taxes that are set to go into effect on Tuesday. The changes will increase the inclusion rate for taxable capital gains from 50 to 67 percent for individuals realizing more than $250,000 in capital gains annually. The proposal was first introduced in Budget 2024 in April, but more details on the changes only became clear on June 10, when the Liberals put a motion to implement them up for a vote in the House of Commons – which was approved. This has led to an influx of clients seeking tax planning advice from accountants, with many scrambling to complete transactions before the June 25 deadline.
Accountants have been working intensively over the past couple of weeks to help clients get their affairs in order before the changes take effect. Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth, has been personally involved in numerous client meetings and presentations on the topic. Some individuals are scrambling to close transactions on the sale of private companies or real estate in order to take advantage of the current 50 percent inclusion rate. Others are considering strategies such as realizing gains at the end of the year to stay under the $250,000 threshold for higher inclusion rates.
Under the new changes, the inclusion rate for capital gains will rise to 67 percent on gains above $250,000 annually for individuals. This two-thirds inclusion rate will apply to all such gains made by corporations and many trusts. However, Canadians’ principal residences will remain exempt from capital gains taxes. The government has stated that this will only affect a small percentage of Canadians, primarily those who are wealthy and realize large capital gains as a one-time event each year. However, some experts believe that the impact of these changes may be broader than initially proposed.
Investors are now considering various strategies to minimize the impact of the changes, including tax gain realization at the end of the year by selling winners in their portfolios. This allows them to stay under the $250,000 gain threshold and realize gains on an annual basis. Similar planning may be done in terms of estate planning to avoid large tax burdens upon death. John Oakey, vice-president of taxation at Chartered Professional Accountants of Canada, anticipates that the changes may lead to technical errors and unintended consequences due to the complexity of the Income Tax Act.
Overall, these changes to capital gains taxes are causing significant concern among Canadians who are looking to minimize the impact on their finances. Accountants and financial experts are working with clients to develop strategies to navigate the new inclusion rates and thresholds. While the government has stated that only a small percentage of Canadians will be affected, the broader implications of these changes remain to be seen. It is likely that individuals with significant capital gains will need to carefully consider their tax planning strategies moving forward to ensure they are in compliance with the new rules.
