CAPITAL GAIN BUDGET 2024

Capital gain tax was introduced in Canada in 1972, since then capital gain tax rates changed throughout the years;

Prior to June 25, 2024 one half capital gain is included in computing, taxpayer’s corporation’s and trust income. Budget 2024 announced an increase in the capital gains inclusion rate 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, for capital gains realized on or after June 25, 2024. Each owner of the property jointly owned by multiple individuals, have an access to the first $250,000 threshold.

As a result, two different inclusion rates would apply for the tax years that begin before and end on or after June 25, 2024. Taxpayers would be required to separately identify capital gains and losses realized before June 25, 2024 and those realized on or after June 25, 2024. Gains and losses from the same period would first be netted against each other.

Capital gains that are not allocated to a beneficiary in the year, will also be entitled to a lower rate of 50% for the first $250,000.

Deductibility of the Business Investment Losses will be preserved and is not subject to the changes or adjusted to the Capital Gain inclusion rates. However, the amount of allowable business investment loss can be reduced by the lifetime capital gains exemption claimed in the past.

Withholding tax on the dispositions of taxable Canadian property by Non-Resident that occur on or after January 1, 2025 is increased from 25 per cent to 35 per cent.

Capital gain deductions are based on taxable capital gains after inclusion rate is applied. This applies to Net Capital losses, Lifetime Capital Gains Exemption (LCGE), Employee Stock Options deduction, proposed Employee Ownership Trust Tax Exemption and proposed Canadian Entrepreneurs’ incentive. CEI encourages entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.

Lifetime Capital Gains Exemption (LCGE) is applicable to eligible individuals who dispose of a shares of a Qualified Small Business Corporation. The introduction of New Canadian Entrepreneurs’ Incentive (CEI) resulted to a combined full and partial exemption of at least $3.25 million when selling all or part of the QSBC shares. LCGE was increased from $1,016 million to $1.2 million. The incentive will result in a one-third inclusion rate on up to $2million.  The limit will increase by $400,000 each year, starting in 2025, until it reaches $2 million in 2029.

For further details, click on the link:

https://www.canada.ca/en/department-finance/news/2024/04/the-new-canadian-entrepreneurs-incentive.html

The following are excluded businesses and therefore not eligible for the CEI.

• Professional Corporations
• accountant, lawyer, Notary and physician
• Finance and Insurance
• consulting and financial services
• services relating to insurance, property including real, rental, tangible and intangible property
• Purchase and sale and rental of real property
• Food and Accomodations
• services or sale of goods relating to providing short-term lodging and complementary services to travelers, vacationers and others.
• Operating facilities or providing services relating to cultural, entertainment and recreational interests
• Provision of services or sale of goods relating to preparing meals, snacks and beverages for immediate consumption on or off the premise

Notice to Reader:

There are conditions and assets test required to be met for a share to qualify as QSBC shares. Taxpayers are encouraged to consult their accountants and business consultants to determine whether or not the shares are QSBC shares before selling the shares.

Failure to report a disposition of qualifying CEI property on individual’s filing-due-date of income tax return will be denied the CEI deduction.