Capital Gains - Answers to your FAQ

The April 16, 2024 Federal Budget announced changes to the capital gains inclusion rate and further proposed legislation was released on June 10, 2024 and August 12, 2024. Once enacted, the changes would impact capital gains realized on or after June 25, 2024.

A capital gain or loss occurs when you dispose of capital property, such as investments, equipment or property. 

Before June 25, 2024, 50% of a capital gain was included in your income and your total income was taxed at your marginal tax rate. This was the same for corporations, trusts and individuals.   

What’s changed?

At a high level – the inclusion rate. From 50% to 67%.

For corporations and most trusts, any gains that are realized on or after June 25, 2024 will have an increased inclusion rate from 50% to 67%. This does NOT mean that your capital gains will be taxed at 67%. This means that 67% of the gain will be included in income and taxed at the marginal tax rate for the corporation or trust. 

For individuals, Graduated Rate Estates (GRE) and Qualified Disability Trusts (QDT), gains above the $250,000 threshold will be subject to the increased inclusion rate of 67% as well.  Any gains below the $250,000 threshold continue to be subject to the 50% inclusion rate. 

Are there any transitional rules for 2024?

Yes!

For corporations and most trusts with tax years that begin before and end on or after June 25, 2024, the year will be divided into two periods. Period 1 will reflect the time before June 25, 2024 and use the 50% inclusion rate for all gains and losses. Period 2 will reflect the time after June 25, 2024 and use the 67% inclusion rate for all gains and losses.

For individuals, GRE and QDT, the annual $250,000 threshold will be fully available (and not pro-rated) for capital gains realized on or after June 25, 2024. This means that the 50% inclusion rate applies to all capital gains before June 25, 2024 as well as the first $250,000 of capital gains after June 24, 2024.

Can I still use my capital losses from prior years?

Yes!

For all corporations, trusts and individuals, capital losses previously incurred will still continue to be applied against future gains. The 100% value of the original loss will still be used against the 100% value of current year gains. In other words, the inclusion rates will be adjusted to ensure that you still receive the full benefit of the prior year losses.

What will this cost in taxes?              

Individuals – using highest marginal tax rates in 2024:

Province 50% inclusion rate 67% inclusion rate

Alberta 24.00% 32.00%

British Columbia 26.75% 35.67%

Corporations:

Province 50% inclusion rate 67% inclusion rate

Alberta 23.34% 31.11%

British Columbia 25.34% 33.78%

*Rates noted above are a percentage of the total gain at 100% (not the taxable portion of 50% or 67%).

How will my corporation’s Capital Dividend Account be calculated?

A corporate Capital Dividend Account (CDA) is the untaxed portion of the capital gains realized and this cumulative amount may be paid out tax-free to the shareholders once certain elections have been filed with CRA.

Historically, 50% of capital gains are taxed and 50% are allocated to the CDA. Going forward, 67% of capital gains will be taxed and 33% will be allocated to the CDA. So less money to shareholders on a tax-free basis.

The proposed legislation from August 12, 2024 is indicating that when corporations pay out the cumulative CDA balance before incurring any other gains/losses after June 24, 2024, there will be no impact from the inclusion rate change.

BUT, if you have gains before June 25, 2024 (and have not filed a CDA election) and then have losses after June 24, 2024, all items will flow through the CDA account at the 33% rate.

The short version is that you will likely want to file CDA elections for any gains/positive CDA balances before incurring any losses.

Stay tuned for our next article which covers planning considerations as a result of these capital gains changes!

The above material is current as of August 14, 2024.

The information presented is a general overview and not intended to cover specific situations. You should consult with your professional advisors directly before taking any action.

Vertefeuille Rempel Chartered Professional Accountants LLP, its partners, employees and agents do not accept or assume any liability by anyone relying on the information presented.