Money Tips Monday: Capital gains tax

Click to play video: 'Money Tips Monday: Capital gains tax increase advice'
Money Tips Monday: Capital gains tax increase advice
It's been a little over a month now since the Liberals unveiled their new Generational Fairness budget but there is one part of it that continues to be in the headlines day after day, it seems. Travis Lowe has more with this month's Money Tips Monday – May 27, 2024

Nothing is certain except death and taxes. And that includes taxes on capital gains.

Recently, there’s been plenty of talk about how this tax policy will soon change.

And it’s been getting plenty of attention, even though government data says it affects less than one per cent of the nation’s population.

While no one likes tax increases, what exactly is a capital gain?

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A capital gain is defined as the difference between the purchase price of an asset — such as investment property, stocks or mutual funds — and the eventual sale of that asset.

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Here’s just one way the new capital gains tax inclusion rate could affect you.

“If you bought a secondary property for $250,000 and let’s say it’s appreciated significantly over the last 20 years to $1 million,” said Zach Smith of KPMG.

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“If you were to sell that today, that would be a $750,000 capital gain. It has a 50 per cent inclusion factor, so $375,000 of it gets added to your taxable income.

“About $500,000 would be added to your taxable income.”

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All corporations and trusts will also have to pay 66.67 percent on all capital gains, while for individuals with gains under $250,000, the rate will remain at 50 per cent.

Even so, the increase will cost those who sell capital assets a substantial amount of money — significantly impacting future nest eggs.

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“Because it changes how much you are left with after taxes, I suggest that clients or people come in talk to your financial planner about your current investment and see how the proposed tax changes would affect you and make decisions accordingly,” said Robert Oleksyn of Valley First, a division of First West Credit Union.

One of those decisions, adds Oleksyn, is to consult a tax expert.

“You should also talk to your accountant and see how it actually will affect your annual tax return,” he said, “and perhaps they have suggestions on how to work your retirement plan around.”

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Smith’s advice is don’t let taxes make your decisions.

He says if you have a capital asset that you’re looking to sell in time, like a cottage or rental property, “there’s no downside to accelerate that sale to pre-June 25 when it changes, you might want to look into that.”

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He also said “If you have that same asset and you have no intention of selling for the next 10 to 20 years, that’s a whole other decision factor of consideration.

“Because what you don’t want to do is make a decision just to pay less taxes when the potential growth or appreciation of that asset over the next 10 to 20 years could quickly overcome the tax savings today.”

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