On January 31, 2025, the Minister of Finance of Canada announced that the federal government is deferring the proposed date on which the capital gains inclusion rate would increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts, from June 25, 2024, to January 1, 2026.
While they postponed the inclusion rate increase, they are continuing to propose to increase the lifetime capital gains exemption to $1.25 million, effective June 25, 2024, and introducing the new Canadian Entrepreneurs' Incentive starting in the 2025 taxation year.
What this means for 2024 income tax filings
As taxpayers prepare their 2024 income tax returns, the deferral of the higher capital gains inclusion rate provides taxpayers with certainty during this income tax season. Those impacted by the proposed changes will not face an immediate capital gains tax increase on capital gains realized after June 25, 2024.
Taxpayers will not need to worry about potential effects on key tax attributes, such as the capital dividend account balance or Refundable Dividend Tax on Hand balance, as discussed in our previous blog, Navigating the uncertainty of capital gains tax: What taxpayers need to know.
Given the uncertainty in the political climate in Canada, taxpayers continue to face challenges in making informed decisions regarding whether to realize gains dispositions where an election to realize such gains or not is permitted. For those taxpayers who engaged in transactions on or before June 24, 2024, to dispose of capital property in a manner that permitted the taxpayer to elect whether or not to realize a gain on such disposition, taxpayers will still need to determine whether or not to realize such capital gain at a time when the one-half inclusion rate was applicable given that the increased capital gains inclusion rate still has not been legislated.
As the government works toward finalizing the new capital gains tax rate, taxpayers must weigh the potential implications of holding or disposing of their assets. Until the legislation is enacted, it remains crucial for individuals to carefully consider the evolving tax landscape and consult with tax professionals to mitigate any potential tax liabilities while navigating this period of uncertainty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
