From UFile's tax expert Gerry Vittoratos.
A capital gain is gain you make when you sell a property. A property can include land, buildings, shares, bonds, fund and trust units.
How are capital gains taxed?
When you sell a property for a gain, you must include 50% of the gain into your taxable income for the year. This is what is commonly referred to as the inclusion rate . For example, if you own shares in a stock in a taxable account that you sold for $5,000, and you purchased these shares for $3,000, you have a $2,000 gain. You must now include 50% of the gain into your taxable income, which in this case will be $1,000.
What the federal government has changed is the inclusion rate of capital gains and losses above a certain amount.
What changed?
Starting June 25th, 2024, if you have capital gains of over $250,000, 2/3 of every dollar gained above $250,000 must be added to your taxable income instead of 50%. Gains below $250,000 will continue to be included at 50%.
Capital gains within registered accounts such an RRSP, RRIF or TFSA are not subject to this change.
Let’s see an example to understand this change, and compare it to the old rules:
John owned a rental property for the last 15 years. He decided to sell it in August 2024. The original purchase price was $200,000, and he sold the property for $500,000.
Calculation amount | Old rules (before June 25th, 2024) | New Rules (as of June 25th, 2024) |
---|---|---|
Disposition amount | $500,000 | $500,000 |
Original cost | $200,000 | $200,000 |
Capital gain | $300,000 ($500,000 - $200,000) | $300,000 ($500,000 - $200,000) |
Added to income | $150,000 (50% of $300,000) | $125,000 (50% of $250,000 threshold) + $33,333 (2/3 of $50,000) = $158,333 |
From the example above, we see that the inclusion rate change for gains above $250,000 results in an additional income $8,333.
Who does it affect?
Based on the $250,000 threshold, this new measure will affect higher income Canadians who have substantial capital gains. For example, sale of a real estate property other than your personal home (principal residence) like a rental property. Another example is a big stock/mutual fund portfolio in a taxable account with substantial transactions.
Lower income Canadians who could be affected are those receiving inheritances, for example a residential property passing on from a deceased person to a relative.
Is there any way to avoid it?
The only surefire way of avoiding this change is to make sure to keep your capital gains transactions to a gain amount that is lower than $250,000. For example, if you’re selling shares that would get you over the $250,000 threshold, make sure to sell these shares progressively over multiple years to be below the threshold.
Update: The federal government recently announced that they are deferring the capital gains inclusion rate increase to January 1st, 2026.
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