On January 31, 2025, Department of Finance announced that the proposed increase in capital gains inclusion rate that was to be effective June 25, 2024 is being deferred to January 1, 2026. So, the capital gains inclusion rate continues to be 50% for all individuals, corporations and trusts until December 31, 2025.
Below is the original proposal.
The 2024 Federal Budget proposes to increase the taxable portion of capital gains from the current 50% (or one-half) to 66.67% (or two-thirds) effective June 25, 2024.
For individual taxpayers, 50% of the first $250,000 of capital gains in a year will be taxable income and 66.67% of any capital gains over $250,000 in a year will be taxable income.
For corporations and trusts, 66.67% of all capital gains will be taxable income. Trusts that retain the capital gains in the trust will pay tax on 66.67% of all capital gains.
Where trusts make distributions and allocate the capital gains to beneficiaries, the beneficiaries will pay tax as individuals (as described above).
For corporations, the portion of capital gain that is added to the tax free capital dividend account will also be reduced from 50% to 33.33% as a result to the change.
The capital gain inclusion rate of 66.67% is not something new. Back in 1988 and 1989, it was increased to 66.67%, then further increased to 75% in 1990, before being lowered back to 66.67% in early 2000. In October 2000, it was brought down to 50% and has remained at that rate until now.
Capital losses carried forward from previous years can be fully applied to capital gains. Therefore, it would be advisable to use them against the capital gains that are subject to 66.67% inclusion rate instead of the capital gains that are subject to 50% inclusion rate.
The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.
