Apr 17, 2024 - 18:13
By cbc.ca

Your questions answered about the proposed capital gains tax changes

The federal government's 2024 budget includes significant new spending on projects and programs — and it's relying on revenue from a change to the capital gains inclusion rate to help pay for it.

So what is this inclusion rate and how does the change affect taxpayers? Here's what you need to know:

What are capital gains?

A capital gain is the difference between an asset's cost and its total sale price. An asset could be a cottage, an investment property, a stock or a mutual fund.

For example, if someone purchased a cottage for $750,000 and later sold it for $850,000, they would have a capital gain of $100,000.

Does the tax on capital gains include the family home?

There are some situations that don't trigger a taxable capital gain. If you sell your primary residence for more than you paid, or earn profits through tax-sheltered vehicles like RRSPs or RESPs, those gains are not taxed.

So if you're selling your primary home, this change won't affect you.

How are capital gains taxed and what's changing?

Right now, only 50 per cent of capital gains are taxable. That person who sold a cottage for $100,000 more than they paid for it is taxed only on $50,000 of the profit.

The 2024 budget would increase the «inclusion rate» from one-half to two-thirds on capital gains above $250,000 for individuals.

So for the first $250,000 in capital gains, an individual taxpayer would continue to pay at the existing rate of 50 per cent. Every dollar beyond $250,000 would be taxed at the proposed two-thirds rate.

The budget proposes to tax all capital gains earned by corporations and trusts at the two-thirds rate.

If adopted, the tax changes would take effect on June 25.