When the 2024 federal budget was released in April, there were several notable proposed tax changes that will have direct implications on most Canadians.
The first change relates to the capital gains inclusion rate. Since 2001, it has been 50 per cent, which means 50 per cent of a capital gain is tax free and 50 per cent is added to your income.
The recent budget proposes to increase that to two-thirds, 66.67 per cent. On every $100,000 of capital gains realized, that equates to roughly $8,300 more tax payable, assuming top tax brackets in Saskatchewan.
Read Also
Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
All corporations will have to pay this two-thirds rate on all capital gains, regardless of the size of the corporation. Individuals will have a $250,000 per year exemption, which is helpful for small sales but would be of no assistance in a year where there is a sale of farmland that was owned for a long time or where farm operations stop and an auction or other mass sell-off occurs, resulting in large capital gains all concentrated in one year.
The budget document postures that these changes will impact only 0.13 per cent of Canadians on personal income taxes and 12.6 per cent of Canadians on corporate income taxes and suggests that these changes are concentrated among the wealthiest Canadians.
Notwithstanding these political catch phrases, the reality is that these rules are much broader than the government suggests and will impact many people who wouldn’t likely consider themselves to be among the wealthiest Canadians.
As a simple way of determining if these changes will impact you, consider the following:
If you own land, buildings or equipment in a corporation, these changes will impact you.
If you own farmland personally or shares of a corporation and their value has grown by more than $250,000 since the time you acquired them, these changes will impact you.
The proposed effective date of these changes is June 25, 2024, which allows people a short window of time to determine if they should engage in any planning prior to that date.
It is recommended you touch base with your tax adviser prior to that date to determine what, if anything, you may want to do to put yourself in the best tax position going forward.
To make matters even more prejudicial to taxpayers, in true fashion of the current federal government, these rules have been proposed in concept and taxpayers are being forced to act on them, but no actual legislation had been provided when this column was written.
This is akin to being forced to play a game without any clarification of the rules. It is anticipated legislation will be tabled some time before June 25, but that is of little use in helping taxpayers plan their affairs now.
There remain significant questions about exactly how this will be implemented and what its final form will look like.
Further, given the history of this government on proposing tax rules and then backing off or significantly revising them, there is a small possibility that the change won’t happen. As such, it would be wise to take a prudent approach with respect to any planning that may be undertaken before June 25, rather than being scared into pre-paying large sums of tax to the federal government as has been forecasted in its budget document.
For quite some time, the lifetime capital gains exemption applicable to qualified farming property has been $1 million. The budget has proposed increasing it to $1.25 million after June 25.
It means that even if you have previously undertaken transactions to utilize your entire exemption, you will soon have additional exemption room that can be used in any transactions that you may be completing going forward.
The capital gains exemption is often used on transactions where personal land is sold, or assets (land or otherwise) are sold into a farming corporation, either directly or as part of a planned transaction over a number of years using a farming partnership.
Similar to the inclusion rate changes, there is not yet any proposed legislation with respect to these changes and therefore the finer details remain to be determined.
The increase to the lifetime capital gains exemption should be added to your list of items to discuss with your tax and estate planning adviser because it may present new opportunities that did not previously exist.
Greg Kirzinger is a tax lawyer and a partner with Stevenson Hood Thornton Beaubier LLP in Saskatoon and practices in the areas of tax, succession planning, farm and business planning and real estate. He can be contacted at gkirzinger@shtb-law.com. This article is provided for general informational purposes only and does not constitute legal or other professional advice and does not replace independent legal or tax advice.
