Taxing Gains: The 25% Surge in Capital Gains Taxes

Let's break down what the 2024 Canadian Federal Budget means for business owners and individuals as it relates to capital gains. Capital gains are subject to be paid upon the sale of the entity or death of the owner. Since business owners and entrepreneurs are my primary audience, they need to address it strategically.

There are plenty of ways to address this increase. One of the best ways is to utilize tax-free life insurance and strategic philanthropy.

Here are some of the Federal Budget’s Capital Gain change highlights:

1. Increase in Capital Gains Taxes:

The government plans to raise taxes on capital gains and profits from selling certain assets like stocks or property. This change will mainly affect individuals and corporations that make significant capital gains. The rate will go from 50% to 66.7%, effective June 25, 2024.

2. Threshold for Increased Taxes:

The increased tax rate is for individuals with annual capital gains above $250,000. For corporations and trusts, the higher tax rate will affect all capital gains.

3. Lifetime Capital Gains Exemption Increase:

Currently, Canadians can avoid paying taxes on up to $1,016,836 in capital gains when selling small business shares or certain properties. This tax-free limit will be raised to $1.25 million, benefiting those with eligible capital gains below $2.25 million.

4. Principal Residence Exemption:

The exemption for capital gains on the sale of a primary residence remains unchanged. This means you won't pay taxes on any profit from selling your home. This had been put on the table for consideration, but no surprise, it was left off.

5. Property Flipping and Speculation:

Capital gains from property flipping (buying and selling within a year) are treated as business income since January 1, 2023. However, exemptions exist for everyday life situations.

6. Canadian Entrepreneurs’ Incentive:

A new incentive to encourage entrepreneurship exists. It reduces the tax rate on eligible capital gains for entrepreneurs to 33.3% on a lifetime maximum of $2 million, potentially providing a combined exemption of at least $3.25 million when selling a business.

Conclusion

Overall, these changes aim to make the tax system fairer, encourage entrepreneurship, address speculation in the housing market, and protect homeowners. 

Business owners, investment property owners and high-net-worth individuals will likely bear the brunt of this budget. More importantly, there’s a great way to address these increases, especially when 75% of business owners are primed to sell their businesses and divest their commercial properties in the next ten years. 

Unsure how this impacts you or your business and, more importantly, how to get ahead of it, I’m happy to discuss options with you.