Page 20 - INSIGHT MAGAZINE_January2025

ADVERTORIAL
Planning changes for the capital

gain inclusion rate

Changes to the capital gain inclusion rate brought forward a new flurry of confusion
and awkwardness among tax practitioners that we have not seen since the beginning of
COVID-19. Refinements to how the policy would be administered, ambivalence among
some finance professionals thinking an election would avoid enacting the legislation
(bad planning strategy), and an inability to file income tax filings for lack of appropriate
software updates and required forms being unavailable from the government (as of
the date of this writing November 26, still not available). What’s a business owner to
do? The rest of this article will assume that this legislation will be in effect in the short
or near term and will provide the business owner with considerations for these new
changes.
- Noah C. Jensen, CPA, CA, LPA

Differentiate your tax plan’s time horizon How to structure investments, personal vs. holding
Don’t make short-term decisions with long-term assets. company
Selling or crystallizing buildings and other longer-term If you have large unrealized gains on investments in your
investments that you are making because the inclusion corporation and they are for investments that are not
rate is changing is not a sound strategy. The last time the regularly traded and held for long periods of time, it is likely
best to refer to the ‘time horizon’ paragraph noted above
inclusion rate was over 50% it was in effect for around a
and not make any changes.
decade before reverting to 50%. In the meantime, don’t sell
that building you own with a low cost basis if you intend For business owners who had holding companies and did
on holding it another 20 years. If you were going to sell it not take much in dividends, our advice traditionally was
to hold capital appreciation investments in their holding
anyway in a year or two, then selling prior to June 24, 2024
company, and income generating investment in personal
and recognizing the gain in that period is a good idea. In
name (preferably in TFSAs, RRSPs, any other available tax
this case, short-term action makes sense.
shelter).
Capital gain reserves as a planning tool We are now reconsidering this on a case-by-case basis. For
For corporations, you should consider recognizing capital retained profits invested in securities we are recommending
gain reserves in the current year instead of claiming a the opposite – capital appreciation in personal name with
reserve if the disposition was June 24th, 2024 or earlier. income in the corporation. The result after paying dividends
This will mean that you have a lower inclusion rate (saving would reduce the tax rate to an acceptably low level and
approximately 8% income tax), and you will have 16% the $250,000 threshold in the business owner’s personal
more of the capital gain reserve included in your Capital name will allow the taxes to be included at the lower rate
insofar as they are less than $250,000. The lower tax-free
Dividend Account (a pool of money you get to distribute to
distribution from the corporation after a capital gain is a
shareholders tax-free).
key consideration here. It is actually a bigger detriment to
For individuals, you are going to have a threshold of the business owner than the higher taxes on the increased
$250,000 at the old rate. For capital gains recognized inclusion rate when you run the numbers.
under $250,000 the old inclusion rate of 50% applies. Over
$250,000 the new inclusion rate of 67% applies. If you have Noah C. Jensen, CPA, CA, LPA is a partner at Racolta Jensen
LLP, a local accounting firm in Cambridge, Ontario. The topics
accrued gains on selling property in excess of $250,000 per
discussed here are complicated and should be discussed with a
taxpayer, extending a vendor take-back and recognizing
qualified tax advisor aware of your complete situation. There are
the capital gain over multiple years will lower the tax bill by many variables that can impact the tax situation of the capital gain
8% assuming the taxpayers are in the highest tax bracket. inclusion rate change. With time, we should see more certainty
This tool will be important for individual investors and estate as to how the policy will be administered and develop better short
planning with children and trusts. and long-term tax plans for individuals, corporations and trusts.

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