What is Capital Gains Tax?

 Capital gains tax is levied on the profit (capital gain) made when you sell or dispose of a capital asset for more than its adjusted cost base (ACB), which is generally the original purchase price plus any associated costs.

Who Does It Apply To?

• Individuals: Anyone selling a capital asset may be subject to this tax.
• Corporations and Trusts: These entities are also liable on the sale of capital assets.

Applicable Circumstances:

• Sale of Investments: Selling stocks, bonds, or mutual funds at a profit.
• Real Estate Transactions: Selling property that is not your principal residence, such as rental properties or cottages.
• Disposition of Other Capital Assets: Includes items like collectibles, land, or business assets.

Taxable Portion of Capital Gains:

As of June 25, 2024, the inclusion rates for capital gains in Canada have changed:
• Individuals:
• First $250,000 of Capital Gains in a Tax Year: 50% of the gain is taxable.
• Excess Over $250,000: 66.67% of the gain is taxable.
• Corporations and Trusts: 66.67% of all capital gains are taxable.

For example, if an individual realizes a capital gain of $300,000 in a tax year:
• First $250,000: 50% inclusion = $125,000 taxable.
• Remaining $50,000: 66.67% inclusion = $33,335 taxable.
• Total Taxable Amount: $125,000 + $33,335 = $158,335.

This taxable amount is then added to your other income and taxed at your marginal tax rate.

Exemptions:

• Principal Residence Exemption: Capital gains from the sale of your principal residence are generally exempt from tax.
• Registered Accounts: Gains realized within registered accounts like RRSPs and TFSAs are not subject to capital gains tax.
Recent Developments:

The Canadian government has implemented these changes to increase revenue for social programs and infrastructure projects. The adjustments aim to ensure that higher-income individuals and entities contribute a fair share of taxes.

Resources for Further Information:

• Canada Revenue Agency (CRA): Provides detailed guides for tax related implications. CLICK HERE FOR MORE INFORMATION

Understanding this tax is crucial for effective financial planning, especially in light of recent changes. Staying informed and seeking professional advice can help you navigate these tax obligations efficiently.