Page 22 - INSIGHT MAGAZINE_July2024

ADVERTORIAL

Capital gain inclusion rate changes

Budget 2024 was expected to be an uneventful budget among thought leaders in the
tax community, the government surprised us in this respect. Being released in late
April versus the usual mid-March announcement, it gave many tax professionals and
taxpayers alike an inadequate amount of time to pivot strategies and adapt to the new
law. You are likely reading this at a point in time when it will be too late to adjust any
transactions that would be influenced by a deadline of June 25, 2024. Lots of rumors
are alive about different transition dates, the legislation possibly not passing, etc. We
plan things as if they are going to happen, since it is often better to be safe than sorry,
depending on individual circumstance. The legislation is still draft as of this writing.
- Noah C. Jensen, CPA, CA, LPA

Who will be affected? Strategic use of capital gains reserves for individuals will
Individuals incurring a capital gain on a transaction in likely be a feature among tax and estate planning moving
excess of $250,000 will now face an inclusion rate of forward, since selling an asset and not receiving all
66.67%. We tend to see business owners undergoing a proceeds as cash on closing may help a family stay below
succession arrangement, executives with stock options, the $250,000 threshold to pay the old rate.
filings for deceased taxpayers falling into this camp most Another option we like to highlight for clients is doing
often. nothing. History doesn’t always repeat itself, but it rhymes
All corporations and trusts will face the new inclusion rate often. The capital gain inclusion rate has been as high as
for the entire capital gain with no threshold. 75% in the past with new governments reverting it back to
What are the implications of the new rate? 50% in the early 2000s. It is possible this will happen again.
Younger clients with long time horizons on their investments
The implication of the new rate is that there will be a higher owned by trusts and corporations have been advised not to
amount of a realized capital gain included in income in the act hastily and sit tight. Seek out a tax advisor who is able
year an asset is sold. Assuming you are in the highest tax to devise a plan unique to your own situation.
bracket, an individual with capital gains of over $250,000
and any corporation or trust earning a capital gain will pay
Noah C. Jensen, CPA, CA, LPA is a partner at Racolta Jensen
about 8% more in income tax applied against the entire
LLP, a local accounting firm in Cambridge, Ontario. This advice
capital gain as a consequence of this change. is general in nature and should not be construed as tax advice
For corporations, the capital gain percentage that is allocated specific to the reader.
to the Capital Dividend Account will also be reduced to
33.33% instead of 50%, meaning that the shareholders of
the corporation will have a reduction in the amount they can
take out tax-free upon realizing a capital gain.
What can be done?
The time to pre-emptively crystallize any gains has elapsed
as of the date of publishing, with the deadline of June 25th.
This article is being written on June 6th, so there is plenty
of time for the government to extend, backtrack, or cancel
this adjustment altogether (which they have done twice with
other filing requirements in the past two years). 47 Dickson Street, Cambridge, (519) 622-1485
general@rjllp.ca | www.rjllp.ca
Assuming everything goes through as proposed, there are
several considerations. It may be more advantageous for
the owner of a small business to introduce a family trust if a
sale or succession arrangement is being considered in the
future since the $250,000 threshold at the old rate could
be used in addition to multiplying the lifetime capital gains
exemption.

22 Summer 2024 www.cambridgechamber.com