FEDERAL BUDGET
2024 Federal Budget: Changes to Capital Gains Tax
- The 2024 budget introduces significant changes to the capital gains tax under the Income Tax Act (Canada). The goal is to increase the inclusion rate for capital gains, affecting corporations, trusts, and individuals.
Proposed Changes
- Currently, 50% of capital gains are included in taxable income. The budget proposes:
- Corporations and Trusts: Inclusion rate increased to 66.67%.
- Individuals: A 66.67% rate applies to annual gains exceeding $250,000 (after deducting capital losses). Gains up to $250,000 remain at 50%.
- Adjustments to deductions for stock option benefits to align with these rates.
- These new rules will apply to gains realized after June 25, 2024, with transitional provisions for periods straddling this date.
Example Calculation for a Corporation with an $800,000 Gain in 2024
- Assistance in selecting and verifying the availability of the company name.
Current Rate (50% Inclusion)
- Taxable gain: $400,000
- Tax payable: $200,000
Proposed Rate (66.67% after $250,000)
- First tranche ($250,000 at 50%): Tax: $62,500
- Second tranche ($550,000 at 66.67%): Tax: $183,342.50
- Total taxable: $491,685
- Total tax: $245,842.50
- Tax increase: $45,842.50
Observations and Impacts
- Tax Integration: These changes raise questions about tax fairness, particularly for holding companies, which do not benefit from the $250,000 exemption.
- Non-Residents: No distinction is made between residents and non-residents, affecting withholdings on taxable property.
- Tax Revenue: Estimated at $19.4 billion over five years, with a decline after 2024-2025, as many taxpayers may accelerate gains before the new rules take effect.
- Inflation: The $250,000 threshold may not be indexed, impacting more taxpayers over time.
Strategies to Mitigate Impact
- Accelerate Sales: Realize gains before June 25, 2024, to benefit from the current 50% rate.
- Reorganizations: Maximize capital losses to offset future gains.
- Review Investment Vehicles: Consider alternatives like limited partnerships or trusts.
- Charitable Donations: Leverage capital gains exemptions for donations of publicly traded shares or eligible assets.
The 2024 budget proposals will have significant implications for tax planning. Proactive planning and consultation with tax advisors are essential to manage these changes effectively and minimize their negative impacts.
The federal budget directly impacts legal governance, access to justice, and the regulation of legal professionals in Canada. As lawyers, understanding budgetary reforms and regulatory changes is critical to ensuring compliance and securing your practices.
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