Proposed Capital Gains Tax Increase Unsettles Cottagers and Investors
The 2024 federal budget proposes to increase the capital gains inclusion rate from half to two-thirds (66.67%) on individual gains above $250,000 within a calendar year as of June 25th.
For clarity, a capital gain is the difference between the purchase price of an asset such as stock, investment property, or cottage and the sale price less improvement and selling costs.
The inclusion rate is the percentage of an asset's value increase the government designates as taxable income when sold.
If you or your family purchased a cottage for $500,000 ten years ago and sell it now for $1,500,000 the $1,000,000 profit is currently subject to a 50% inclusion rate resulting in a $500,000 taxable capital gain.
After June 25th, the first $250,000 remains calculated at the 50% inclusion rate thus $125,000 is taxed as before. The remaining $250,000 will be subject to a new two-thirds (66.67%) inclusion rate generating $166,750 of taxable income. The total capital gain would be $291,750 taxable at your marginal income tax rate.
For properties in corporations or trusts the higher two-thirds rate will apply to the capital gain.
Your primary residence is not subject to capital gains tax. This tax increase only applies to investment and secondary properties which for many potential sellers overlook a lake, forest or mountain.
For more information on selling your home, cottage, or investment property we are here to help you explore your options.
