Capital Gains Taxes to Rise for High Earners in 2024 Tax Changes

Adjusting the Scales: Canada’s Capital Gains Taxes Set for a Shift

In a move that is poised to recalibrate the fiscal landscape for high earners, the federal government has unveiled plans to adjust the inclusion rate on capital gains taxes. This change, spotlighted in the recently tabled Budget 2024 by Finance Minister Chrystia Freeland, is expected to generate substantial revenue while maintaining tax benefits for entrepreneurs.

The proposed amendment will see the inclusion rate for capital gains taxes realized annually above $250,000 by individuals and on all capital gains by corporations and trusts increase from one-half to two-thirds. This adjustment, slated to take effect on June 25, 2024, is anticipated to affect approximately 12 percent of Canadian companies and a small fraction of high-income individuals.

John Oakey, VP of taxation at CPA Canada, anticipates that this announcement may prompt some to accelerate their capital gains realization before the new rules kick in. The intention is to benefit from the current 50 percent inclusion rate rather than the forthcoming two-thirds rate.

Despite these changes, the Department of Finance assures that middle-class Canadians will not be left behind. They will continue to enjoy various exemptions, including the $250,000 annual threshold and tax-free savings accounts (TFSAs), among others. For instance, under the new rules, a high-income earner in Ontario with a $400,000 salary and $300,000 in capital gains would see their tax payment increase by $4,461.

The notion of ‘tax fairness’ is underscored in the budget, with an emphasis on younger Canadians who are less likely to be affected by these changes. Moreover, the government maintains that these adjustments will not dampen Canada’s business competitiveness, especially when compared to international counterparts where corporate capital gains are often taxed more heavily.

While most non-wealthy individuals are expected to remain unaffected by the threshold, Oakey notes potential impacts during significant one-time events. He also points out that while the middle class may not regularly face these tax changes, certain life events could push them over the threshold.

Amidst concerns over new spending measures and their impact on deficits, the government has highlighted its commitment to keeping spending in check while introducing incentives for entrepreneurship. The budget outlines a Canadian Entrepreneurs’ Incentive, which will offer a reduced inclusion rate on eligible capital gains, aiming to bolster business sales and investments.

This incentive is part of a broader strategy to foster a competitive and fair tax environment that encourages innovation and growth while ensuring that the tax system remains equitable across different income brackets.