Urgent: Capital Gains Tax Changes Effective June 24, 2024 – Consult Your Tax Expert Now!
The unveiling of Canada’s 2024 federal budget brought unexpected news to the real estate investor: a proposed increase in the capital gains inclusion rate. Effective June 25, 2024, the capital gains inclusion rate is set to rise. How will the upcoming changes impact you?
Understanding Capital Gains:
Simply, when you sell an asset or investment for more than its purchase price, you realize a capital gain. The capital gains inclusion rate determines how much of your capital gains are taxable. Currently, the inclusion rate is 50%, meaning one-half of all capital gains realized are taxable.
For example, let’s say you bought a rental condo (not as your primary residence) in January 2012 for $300,000. It is now valued at $1,000,000 on May 5, 2024, so there is a potential profit of $700,000 when sold. Based on the current 50% capital gains inclusion rate, $350,000 of your profit would be taxable – generally, this would result in approximately $88,000 in taxes owing to CRA.
Proposed Changes
Starting June 25, 2024, the government has proposed to change the capital gains inclusion rate from 50% to 66.67% and so in our scenario, the $700,000 profit would result in tax obligation of $116,000 or additional $30,000.00 in tax.
How does it affect you?
If you have any properties, such as rental condos with appreciable capital gains exceeding $250,000, the proposed increase in the capital gains inclusion rate will impact you.
If you do not have any corporations, trusts, or have annual capital gains of $250,000 or less, the inclusion rate of 50% will likely remain unchanged, even after June 25, 2024.
Given the complexity of these changes, consulting a qualified tax advisor and financial planner is CRUCIAL. If you intend to keep your investment property for long term, i.e. for over 3 -10 years or longer, then the status quo may be better – discuss and review, but remember us real estate lawyers have only 1 week left to prepare and register the transfer documents which may be recommended.
If you have any questions related to capital gains regulations, contact us here!
Authors:
John Y.S. Park
Managing Partner
e: ysp@realtycarelaw.com
Irene Lee
Summer Intern