Editor’s note: An earlier version of this story said Budget 2024 is proposing an increase in the capital gains taxation rate for any gains realized above $250,000. In fact, the inclusion rate for any capital gains realized above that amount is set to increase.
The federal government’s 2024 budget proposes changes to how capital gains are taxed, which could see the wealthiest Canadians pay up a bigger share of their returns.
The Liberals announced plans Tuesday to increase the inclusion rate on capital gains, which are the proceeds of the sale of an asset like a stock, income property or a business.
Under the proposal, the inclusion rate for annual capital gains realized above $250,000 for individuals would be taxed at a rate of two-thirds, up from the current 50 per cent. Any gains under that bar would continue to be taxed at the 50 per cent rate.
The changes would also apply to all capital gains realized by corporations and trusts, regardless of the $250,000 bar.
The proposed change, if adopted, would come into effect on June 25, 2024.
The tax system also provides a lifetime capital gains exemption in the instance of an individual selling their small business or a qualifying farm or fishing property. That exemption will remain and budget 2024 proposes expanding it to $1.25 million of eligible capital gains, up from just over $1 million currently.
The budget also proposes a new carve out for entrepreneurs, protecting the sell-off of some shares in specific instances. This incentive would apply to up to $2 million in capital gains per individual over a lifetime, and would see proceeds taxed at an inclusion rate of 33.3 per cent.
Selling a primary residence will remain excluded from capital gains taxes under the proposal.
Who will this affect?
The 2024 budget calls the current 50 per cent inclusion rate the “capital gains tax advantage.” Wealthy Canadians “disproportionately benefit” from this advantage, the budget notes, when compared to middle-income households.
“Differences in taxation rates between income earned from wages, capital gains, and dividends currently favour the wealthiest among us,” the budget read.
The federal government projects that 28.5 million Canadians will not have any capital gains income next year, while three million others are expected to have proceeds below the $250,000 annual threshold.
Only 0.13 per cent of Canadians – 40,000 individuals – are expected to pay more taxes on their capital gains in any given year, according to a budget. These Canadians have an average income of $1.4 million.
The federal government estimates that only 307,000 corporations in Canada (12.6 per cent) have capital gains and will be affected by the changes.
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