I wanted to take a moment to share some important updates from the 2024 federal budget that could impact your financial planning, especially concerning capital gains. Here’s a brief overview of the key changes and their potential implications.

Key Federal Budget Capital Gains Measures

Increase in Capital Gains Inclusion Rate
Change: Effective June 25, 2024, the capital gains inclusion rate rose from 50% to 66.67% for trusts and corporations. For individuals, the rate also increased to 66.67% but only on annual capital gains exceeding $250,000. Gains below this threshold will continue to be taxed at the 50% inclusion rate.
Impact: This means a larger portion of your capital gains will be subject to income tax, potentially increasing your tax burden on real estate investments, property sales, and gains realized within corporations. Additionally, gains on Canadian residential property held for less than a year may be considered business income, thus being fully taxable under the residential property flipping rule unless an exception applies.

Increase to Lifetime Capital Gains Exemption (LCGE) for Entrepreneurs
Change: The LCGE increased to $1.25 million (up from $1.016 million) for eligible capital gains, effective June 25, 2024.
Impact: If you're selling shares of a qualified small business corporation (QSBC) or qualified farm and fishing property (QFFP), this increase in the exemption amount can significantly benefit you by reducing your taxable income.

Alternative Minimum Tax (AMT) Adjustments
Change: Adjustments to AMT rules to align with changes in regular income tax calculations. The AMT is a parallel tax calculation that allows fewer tax credits, deductions, and exemptions than ordinary personal income tax rules. Taxpayers pay the higher of the regular tax or AMT.
Impact: AMT considerations become crucial in planning for capital gains realization and charitable contributions, influencing your tax planning strategies.

Canadian Entrepreneurs’ Incentive
Introduction: Starting in 2025, a new initiative will reduce the capital gains tax rate to one-third on up to $2 million of qualifying shares. This incentive provides for a capital gains inclusion rate that is half the prevailing rate on up to $2 million in capital gains per individual over their lifetime.
Impact: While this incentive does not apply to professional corporations, it aims to promote entrepreneurship by lowering the tax burden on qualifying share sales.

Strategic Planning Considerations
Consultation: Engage with a tax advisor to navigate these changes effectively and tailor strategies to your specific financial situation.
Long-term Planning: Assess the implications for retirement planning, estate management, and future investment decisions in light of these regulatory adjustments.

As these tax policies evolve, proactive planning is crucial. This overview is just a high-level summary provided by the Toronto Regional Real Estate Board (TRREB), and I strongly encourage you to seek expert professional advice to safeguard your financial interests.

In the meantime, for more information, please visit the Government of Canada’s website.
https://www.canada.ca/en/department-finance/news/2024/06/capital-gains-inclusion-rate.html#

Disclaimer: This information is based on proposed legislation and is subject to revision. It does not constitute accounting, legal, or tax advice. For personalized advice, please consult with a qualified professional.