As a Toronto real estate agent, I have received many questions about Canada’s new Capital Gains Structure. According to the 2024 Federal Budget, “Fairness for Every Generation,” will increase the amount paid in capital gains by Canadians. If you are an investor looking to buy or sell a rental property, take some time to educate yourself on the new structure coming into effect on June 25, 2024.
We live in one of the wealthiest countries in the world. For many generations, Canada has been a spot on the map where individuals can build a successful future for themselves and future generations. A large factor contributing to the success of Canada is our dedication to progressive taxation.
In simpler terms, individuals shall pay their fair share. As a result, to exercise fairness for every generation, our government is investing in things like; dental care, pharma care, child care, environmental initiatives, etc. Furthermore, the government is investing in Canada’s future so that the youth of today can experience similar opportunities as generations before them. Canada’s government has released a program called “Fairness for Every Generation,” which taxes those who have heavily benefited from the opportunities that Canada has offered.
Capital Gains in Canada
Currently, Canadians pay 50% taxes on their capital gains. A Capital gain is the profit earned when an individual sells an asset such as a property. The capital gains tax advantage in Canada is more prominent than in any other G7 country. Of course, all Canadians can benefit from this capital gains tax advantage, it is the wealthy who generally earn more income through capital gains. As a result, the outcome is an unbalanced benefit for the middle to lower class.
Fairness for Every Generation: New Capital Gains Structure
Taxing Canadians fairly is important for all generations, especially for younger Canadians. According to Canada.ca, in 2021, approximately 5% of Canadians under the age of 30 had capital gains. It is projected in 2025, as little as 1% of Canadians under the age of 30 are expected to have capital gains above $250,000 (the new threshold).
The 2024 budget proposed an increase in the capital gains tax on the wealthiest Canadians. This is expected to affect 13% of Canadians. In an attempt to make our systems more fair, the 50% tax on capital gains will increase from half to two-thirds (66.6%) on any amount over and above a $250,000 per year gain. This new tax will come into effect on gains on or after June 25, 2024.
Example of the New Capital Gains Tax
For example, an individual living in Ontario sells an investment property they originally purchased for $250,000. Eventually, they sell it for $600,000. This is a capital gain of $350,000. Under the current rules, they would pay income tax on 50% —$175,000—of that capital gain.
As a result, under the new structure, the individual will be taxed 50% on the first $250,000 earned of the $350,000, which comes to $125,000. Plus, they will pay a 66% tax on the additional $100,000—$66,000—of that capital gain. This totals $191,000 under the new structure.
The change in capital gains in this example would cost the individual an additional $16,000 more in combined federal-provincial income tax.
Majority of Canadians’ Income Taxes Will Not Increase
It is estimated that in 2025, 28.5 million Canadians will not have any capital gains income and only 3 million will earn below the annual threshold of $250,000. This means only 13% of Canadians averaging $1.42 million will pay more taxes on their capital gains next year.
If you are looking to sell an investment property before the deadline, feel free to reach out to one of our expert Toronto real estate agents. For more information, book a consultation today!
Sources:
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