CAPITAL GAIN??

What is a capital gain?

A capital gain is the profit you make when you sell an asset. An asset can include land, buildings, stocks, bonds, fund units, and trust units.

How are capital gains taxed?

When you sell an asset at a profit, you must include 50% of the profit in your taxable income for the year. This is commonly referred to as the inclusion rate . For example, if you own shares in a taxable account that you sold for $5,000, and you bought those shares back for $3,000, you have a profit of $2,000. You must now include 50% of the profit in your taxable income, which in this case would be $1,000.

What the federal government has changed (Quebec as well) is the inclusion rate of capital gains and losses above a certain amount.

What has changed?

Starting June 25, 2024, if you have capital gains exceeding $250,000, two-thirds of each dollar earned above $250,000 will be added to your taxable income instead of 50%. Gains under $250,000 will continue to be included at 50%.

Capital gains in registered accounts such as an RRSP, RRIF or TFSA are not subject to this change.

Let's look at an example to understand this change and compare it to the old rules:

Jean had owned a rental property for 15 years. He decided to sell it in August 2024. The initial purchase price was $200,000, and he sold the property for $500,000.

Calculation amount	Old rules (before June 25, 2024)	New rules (effective June 25, 2024)
Calculation amount	Old rules (before June 25, 2024)	New rules (effective June 25, 2024)
Amount of the provision	$500,000	$500,000
Initial 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 the $250,000 threshold) + $33,333 (2/3 of $50,000) = $158,333

Based on the example above, we see that changing the inclusion rate for earnings over $250,000 results in an additional income of $8,333.

Who does this affect?

Based on the $250,000 threshold, this new measure will affect high-income Canadians who have substantial capital gains. For example, the sale of real estate other than your principal residence , such as a rental property. Another example is a large portfolio of stocks/mutual funds in a taxable account with substantial transactions.

Low-income Canadians who could be affected are those who receive inheritances, for example, residential property passed down from a deceased person to a relative.

Is there a way to avoid it?

The only sure way to avoid this change is to ensure your capital gains transactions remain below $250,000. For example, if you sell stocks that would put you over the $250,000 threshold, be sure to sell those stocks gradually over several years to stay below the threshold.

Update : The federal government recently announced that it is postponing the increase in the capital gains inclusion rate until January 1, 2026.