Canada Proposes New Capital Gains Tax: What You Need to Know

April 30, 2024
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Canadian Prime Minister Justin Trudeau has unveiled a proposal to overhaul the Capital Gains Tax to address income inequality and boost government revenue. Set to take effect on June 25, 2024, the proposed changes will impact a select group of taxpayers and have implications for both individuals and corporations.

Understanding Capital Gains Tax

The Capital Gains Tax is levied on individuals when they sell an asset or capital property, with capital gains representing the profits from such sales.

This tax applies to a wide range of capital assets, including:

  • Real estate: cottages, land, and buildings
  • Financial investments: stocks, bonds, cryptocurrencies, and mutual fund units

The Proposed Alteration

Under the proposed alteration, the inclusion rate for annual capital gains realized above $250,000 for individuals would increase from the current 50% to a higher rate of two-thirds (67%). Any gains below this threshold would continue to be taxed at the existing 50% rate. This change would also apply to all capital gains realized by corporations and trusts, regardless of the $250,000 bar.

Who Will Be Affected?

The government estimates that this adjustment will primarily impact the wealthiest 0.13% of individuals—approximately 40,000 Canadians—who earn substantial capital gains annually. Additionally, about 12% of Canada’s corporations fall within this category. Individuals with an average income of CAD 1.42 million will face the new tax rate, while the vast majority of Canadians—99.87%—will remain unaffected.

Exclusions and Revenue Projections

The suggested modifications do not apply to the sale of primary residences, which means that homeowners will not be affected by the increased tax rate. Nevertheless, other capital assets will be subject to the revised regulations. Based on the projections, this initiative is expected to generate an additional revenue of around $19.3 billion for the Canadian government over the next five years.

Crypto Taxation in Canada

While the Capital Gains Tax primarily targets traditional assets, it’s essential to address the taxation of cryptocurrencies. In Canada, crypto-assets are treated as commodities for tax purposes. Here are some key points:

1. Business Income or Capital Gains: Canadian taxpayers are subject to capital gains or business income taxes when selling, mining, or engaging in other crypto-related activities.

2. Keeping Records: Individuals and businesses involved in crypto transactions must maintain adequate records.

3. Lifetime Capital Gains Exemption: Budget 2024 proposes expanding this exemption to $1.25 million of eligible capital gains.

4. Software and Exchanges: Various software tools are available for tracking crypto trades and maintaining records. Users should choose reliable software for record-keeping.

While the proposed Capital Gains Tax changes primarily affect traditional assets, Canadians should also stay informed about crypto taxation guidelines to ensure compliance with the evolving regulatory landscape.

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