The 2024 federal budget includes significant new spending on projects and programs, relying on revenue from a change to the capital gains inclusion rate to help pay for it. Here’s a breakdown of what this change entails:

Capital Gains and Taxation:

• Capital gains refer to the profit made from selling assets like real estate, stocks, or mutual funds.
• The tax on capital gains does not include profits from selling a primary residence or gains from tax-sheltered accounts like RRSPs or RESPs.

Current Taxation System:

• Currently, only 50% of capital gains are taxable.
• Individuals are taxed on half of the profit from capital gains.
• There are exemptions for primary residences and certain investment vehicles.

Proposed Changes:

• The 2024 budget suggests increasing the “inclusion rate” from one-half to two-thirds on capital gains exceeding $250,000 for individuals.
• For gains above $250,000, two-thirds of the capital gains would be taxable.
• Corporations and trusts would also be subject to the two-thirds tax rate on all capital gains.
• The proposed changes are set to take effect on June 25.

Impact on Canadians:

• The lower tax limit of $250,000 aims to target high-income individuals.
• Most Canadians, including 28.5 million who don’t earn capital gains and three million with gains below the threshold, are not expected to be affected.
• Only 0.13% of Canadians, with an average income of around $1.4 million annually, are projected to pay more in personal income tax on their capital gains due to the change.