Navigating Canada’s New Capital Gains Tax: 10 Strategies to Stay Ahead

In 2024, the Canadian government introduced changes to capital gains taxation, effective June 25, 2024. The major revision is an increase in the capital gains inclusion rate from 50% to 66.67%, meaning a larger portion of your capital gains will be taxable. For individuals, this increase applies only to gains over $250,000 annually. For corporations and most trusts, however, the new inclusion rate applies to all gains. The principal residence exemption remains intact, meaning you won’t pay capital gains tax when selling your primary home.

With an election on the horizon and the possibility of these changes being overturned, consider the following strategies to manage your capital gains:

1. Hold on to Gains: If the election outcome might reverse these policies, you could choose to delay selling your assets until after the election.

2. Use the Principal Residence Exemption: Continue to leverage the principal residence exemption, as sales of your primary home remain tax-free.

3. Maximize TFSA and RRSP Contributions: Capital gains earned within these accounts are tax-sheltered, making them advantageous vehicles.

4. Optimize the $250,000 Threshold: For individuals, ensure gains stay below $250,000 annually to avoid the higher tax inclusion rate.

5. Spread Out Gains Over Time: To manage your taxable income, consider selling assets in smaller portions across multiple years.

6. Review Estate Planning: With trusts affected by the higher inclusion rate, it’s important to reassess how you hold assets in trusts.

7. Consider Gifting Assets: Transferring assets to family members in lower tax brackets could reduce your overall tax burden.

8. Offset Gains with Losses: Using capital losses to offset gains is a strategic way to reduce the amount of taxable capital gains.

9. Incorporate Gains into Retirement Plans: Use capital gains when planning your retirement withdrawals, particularly if the tax rate decreases in the future.

10. Stay Informed: Follow any legislative developments closely, as the upcoming election may change or reverse these capital gains rules.

    
    

Given the uncertainty, remaining flexible and working with a tax advisor will help you navigate the potential changes effectively​.