In the 2024 federal budget, the Canadian government proposed an increase to the capital gains tax inclusion rate effective June 25, 2024. A capital gain is the profit you make from selling an asset like an investment security or a real estate holding. Accounting for all new tax measures is an integral part of your wealth plan, and I want to ensure you’re aware of how these proposed changes may affect your wealth planning and investment strategies.

 

In our latest tax insights video, Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Private Wealth discusses the proposed changes and how they may affect wealth and tax planning for corporations and trusts. 

 

Transcript 

 

Here are some highlights from the video:

 

What are the proposed changes to the capital gains tax inclusion rate for corporations and trusts?

With the new rules, the capital gains tax inclusion rate will increase from 50% to two-thirds (66 2/3%) for corporations and trusts. For individuals, gains under $250,000 in a year will still be taxed at a 50% inclusion rate and any gains over $250,000 realized in a year as of June 25, 2024 will be taxed at a two-thirds inclusion rate. Corporations and trusts do not get the benefit of the lower rate on the first $250,000 of annual gains.

 

Accordingly, if a corporation or a trust sells an asset for a profit on or after June 25, 2024, that gain will be taxable at a two-thirds inclusion rate. This applies to all corporate structures including professional, operating and holding corporations. The new capital gains tax rates for individuals and corporations are outlined, by province, in Jamie’s report Should I sell or should I hold? Capital gains tax planning.

 

Should you crystallize capital gains prior to the effective date?

 

The answer depends on a number of factors such as your expected rate of return from the investment if you continue to hold it, your time horizon and holding period for the investment, distribution plan for the gains, and how long the money is going to stay in the corporation.

 

It’s common practice for most trusts to distribute the gains to the beneficiaries every year. Therefore, there are generally no gains to be taxed in the trust on an annual basis. In this scenario, when the beneficiaries receive the capital gains from the trust, they will be required to report the capital gains on their personal returns and pay tax on those gains at their own individual rate. As individuals, this allows trust beneficiaries to take advantage of the lower rate on the first $250,000 of capital gains in a year. In this case individuals would only pay the higher inclusion rate on the capital gains over $250,000 in a year as of June 25, 2024.

 

At CIBC Private Wealth, we take a comprehensive approach to managing, building and protecting your wealth. If you have questions or would like to discuss tax planning in more detail or have questions about your wealth plan and investment portfolio, please get in touch with me anytime.