The Impact of Federal and Provincial Budgets on Capital Gains Tax

 With the recent announcements of the federal and provincial budgets, capital gains tax in Canada has undergone significant changes. These changes could have a considerable impact, especially on those planning to sell real estate properties that have appreciated in value over the years.

 What is a Capital Gain?​

A capital gain is the difference between the purchase price of an asset, such as a house, condo, or cottage, and its selling price. For example, if you buy a cottage for $100,000 and sell it 12 years later for $450,000, the gross capital gain would be $350,000. However, to calculate the net taxable capital gain, you must deduct expenses related to the acquisition and sale, such as improvement costs ($40,000) and real estate brokerage fees ($10,000). Thus, the net capital gain would be $300,000. 

What Federal and Provincial Changes Does This Involve?​ 

 Before June 25th: Traditionally, only half of the capital gain (50%) was taxable. For our cottage example, this means that out of a gain of $300,000, $150,000 would be added to the owner's annual income and subject to tax

After June 25, 2024: The federal budget of April 16 introduced a new provision: for capital gains exceeding $250,000, the inclusion rate increases from 50% to 66.67%. Therefore, for a gain of $300,000, the first $250,000 would be included at 50%, or $125,000, and the remaining $50,000 at 66.67%, or approximately $33,335. Thus, the total taxable capital gain would be $158,335.

The Resulting Tax Implications​

Federal and Provincial: Quebec aligns with the federal government by adopting the same inclusion rate for capital gains exceeding $250,000. This measure will also apply from June 25. For example, if you sell your cottage after this date, the combined tax (federal and provincial) will be slightly higher.

Tax Calculation: In the above example, with an annual income of $100,000, if your cottage is sold before June 25, the taxable capital gain of $150,000 will be added to your income, totaling $250,000. With the new rates, the total taxable amount would be $258,335. The tax difference may seem minimal, but it can be significant for higher capital gains.

Choosing a Broker is Important!

 So, if you are considering selling your property soon, these changes may influence the decision to sell before or after June 25. To understand the specific implications for your situation, it is important to consult with a trusted broker. And I am here to guide and assist you!

Contact me now to evaluate the best strategy for your sale and avoid these additional costs:

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