Capital Gains Tax - Changes in the 2024 Budget

The 2024 Canadian Budget introduced several changes related to capital gains that are important to be aware of. Here are the key points:

Increase in Capital Gains Inclusion Rate:

• The 2024 budget increased the inclusion rate for capital gains realized on or after June 25th 2024 from one-half to two-thirds for corporations and trusts, and from one-half to two-thirds on the portion of capital gains realized in the year that exceed $250,000 for individuals.
• The $250,000 threshold would effectively apply to capital gains realized by an individual, either directly or indirectly via a partnership or trust, net of any:
  • current-year capital losses;
  • capital losses of other years applied to reduce current-year capital gains; and
  • capital gains in respect of which the Lifetime Capital Gains Exemption, the proposed Employee Ownership Trust Exemption, or the proposed Canadian Entrepreneurs' Incentive is claimed.
• Net capital losses of prior years would continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset.

Principal Residence Exemption:

• The government clarified that Budget 2024 changes to capital gains do not include changes to the principal residence exemption. The government is maintaining the principal residence exemption, to ensure Canadians do not pay capital gains taxes when selling their home.

Claim a capital loss from other investments

• Capital losses can help offset the taxes you would otherwise pay on capital gains until the balance of capital gains for the year is reduced to zero. 
• TAxpayers can claim net capital losses for the year to offset gains reported to the CRA during the previous three years, or you can carry those losses into the future indefinitely and apply them to capital gains in another year.  

Changes to the Lifetime Capital Gains Exemption (LCGE):

• The budget maintained the LCGE for qualified small business corporation shares and qualified farm and fishing properties but capped the amount eligible for exemption.
• The cap has been indexed to inflation, but the budget imposes tighter rules on the qualification criteria to prevent abuse of the exemption.

These changes are designed to increase revenue, reduce speculation, and ensure that the tax system is fairer and more equitable.

Taxpayers should consult with our office to understand the extent of the changes brought in by the 2024 Budget and how the new rules may impact their financial planning and investment strategies.