Capital Gains Tax Hike
Tom Van Horne • August 22, 2024
Finance Minister Freeland has introduced significant changes to the capital gains tax. The new policy aims to increase taxes on capital gains for individuals who make
more than $250,000 from selling stock or property other than their primary residence.
Currently, 50% of capital gains profits are taxed, compared to 100% of employment income.
Under the new proposal, this will remain the case for the first $250,000 of capital gains income. However, for income above that level, the taxable amount will
rise to 66.6%. This means the tax-exempt portion for capital gains exceeding $250,000 will be reduced to one-third. The lower exemption will also apply to businesses for all capital gains, not just those over $250,000.
This change is expected to
generate $19.4 billion for the government over the next five years.
The additional capital gains taxes will likely reduce business capital spending, which is already at a low point, exacerbating Canada's productivity challenges. Higher taxes on capital gains also disincentivize investment in residential rental real estate, an area that requires more robust funding.
The effects of the tax hike will
extend beyond investors to average Canadians. For instance, individuals who bought a condo or cottage for retirement, recreation, or additional income may rush to sell before the June 25th deadline. This surge in inventory could lead to a
significant drop in prices, benefiting buyers.
However, the opposite scenario could also occur. The tax hike might prompt investors and homeowners to
delay selling, causing a sharp decline in supply and
driving prices higher. Faced with rising prices and limited options, some buyers might choose to postpone their purchases. Sellers could also set higher asking prices to offset the tax hike, making
homeownership unaffordable for many, especially first-time buyers.
The higher inclusion rate will also affect those who inherit property. Taxpayers who are gifted a property or inherit one and then sell it could face the higher capital gains tax rate. If the capital gains from selling a gifted or inherited property exceed $250,000, the seller could end up paying
more in taxes.
The increased capital gains inclusion rate will impact those planning to sell valuable properties with lower cost bases, altering the economics of real estate investment in rental properties. This sector needs more
generous funding, and the new tax policy could hinder its growth.
The proposed capital gains tax hike will have widespread implications, affecting not only investors but also regular home buyers, sellers, and inheritors. As the market adjusts to these changes, it will be crucial for Canadians to stay informed and consider the long-term impacts on their
financial planning and
real estate investments.
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Original Article by Guiding Star Mortgage Group Available Here
