Moore Stephens
Canadian news

New capital gains legislation: what you need to know

Recent government changes to capital gains tax could have a significant impact on your finances and investment strategies.

What changes?

As part of its 2024 budget, the Canadian government has introduced significant changes aimed at increasing tax fairness. Effective June 25, 2024, the capital gains inclusion rate will increase from 50% to 66.67% on capital gains in excess of $250,000 per year for individuals. For corporations and most types of trusts, this change in inclusion rate also applies, but to all realized capital gains (the latter do not benefit from the exclusion threshold for the first $250,000 of capital gains). The Notice of Ways and Means Motion to increase the capital gains inclusion rate was published on June 10. Based on our analyses, the tax provisions introduced by the government could lead to a potential problem concerning dividends from the Capital Dividend Account (CDA). To the extent that a DCC dividend is declared and paid in a taxation year that straddles June 25, 2024, the DCC could be considered excess in certain circumstances, even if the DCC was paid prior to June 25, 2024. Here is a summary of the details published by the federal Department of Finance:

Exemptions and new thresholds

  • Exemption for principal residences: maintained.
  • New annual threshold of $250, 000: individuals continue to benefit from the current 50% inclusion rate on capital gains.
  • Lifetime capital gains exemption (as of June 25, 2024): increased to $1,250,000 for sales of small business shares and farm or fishing property.

Transition year

For 2024, two inclusion rates will apply to capital gains realized by taxpayers: 50% for capital gains and losses realized before June 25, 2024, and 66.67% for capital gains and losses realized on or after June 25, 2024 (subject to the new $250,000 threshold for individuals). It will therefore be necessary to determine the date of disposition of the assets to determine the period to which the capital gains or losses relate. For example, an individual who realizes a capital gain of $600,000 on January1, 2024 and a capital gain of $400,000 on August1, 2024 should include a taxable capital gain of $525,005 in his or her taxable income for 2024.

((600 000$ * 50 %) + ((250 000 $ * 50 %) + ((400 000$ – 250 000 $) *66,67 %)))

Capital dividend

Despite the bill’s publication on June 10, there are still uncertainties surrounding the treatment of capital gains and losses arising after June 24, 2024 in the calculation of a company’s Capital Dividend Account (“CDA”). Based on the information currently available, and in order to determine the taxable capital gain for the year ending June 25, 2024, an average inclusion rate for the year will have to be calculated. Since the average rate will be a ratio of net capital gains and losses realized before June 25, 2024 to those realized after June 24, 2024, it may be necessary to wait until the company’s year-end to determine its CDA balance based on all transactions. Depending on the capital gains and losses realized during each of these periods, the results may be unfavorable depending on the desired planning. In view of this, it may be preferable to wait until the end of a company’s fiscal year before choosing a capital dividend. Further clarification from the Ministry of Finance is expected. In fact, several representations have been made to have this corrected in the next version of the bill, which should be published towards the end of July 2024. However, no confirmation has yet been issued by the Ministry. Insofar as possible, it may also be wise not to carry out transactions generating capital gains and losses affecting the CDC as of June 25, 2024, until the tax authorities have published new information on this subject.

Changes to stock option deductions

Certain deductions may be available when an employee exercises a stock option so that the stock option benefit is included in income in a manner similar to a capital gain. The deduction rate will therefore be adjusted to give an inclusion rate of 66.67%. It will be possible for employees benefiting from stock option deductions to use all or part of their $250,000 annual threshold to reduce the inclusion to 50% on stock options exercised in a year.

How does this affect you?

We recommend that you reassess your investment and tax planning strategies in light of these new measures. Our team is available to help you navigate these changes and optimize your finances accordingly. Please do not hesitate to contact us if you have any questions, or to discuss how best to structure your investments in the future. For more information on the change to the capital gains inclusion rate, click here. To reread our 2024 budget summary.

Subscribe to receive our advice.

RECENT NEWS

Always well informed

How to prepare for an accounting and financial audit?

Having an audit enables companies with reporting obligations to comply with the laws and regulations in force in Canada. In addition, an audit reinforces a company's financial credibility with investors and creditors, thereby facilitating access to financing. We understand that business leaders often view the audit process with some reluctance, due to the time and [...]
READ

Best practices in human resources

From recruitment and training to labor relations and personnel administration, HR professionals orchestrate strategies to attract, develop and retain talent. To meet the challenges of the professional world in 2025, HR departments are adopting innovative approaches that combine technical expertise, interpersonal skills and mastery of digital tools.

READ

Tax Implications of Teleworking Abroad

The COVID-19 pandemic has turned our lives upside down and reshaped the world of work. Telecommuting has become an integral part of life for many Canadian employers and employees. Not only does it allow you to work from your home office, it also means you can work from anywhere in the world, at any time [...]
READ

Increased Tax Scrutiny for Canada’s High Net Worth: Issues for Wealth Management

The Canada Revenue Agency (CRA) has recently strengthened its monitoring program for High Wealth Tax (HWT) groups. This program targets individuals with a net worth of $50 million or more, representing a significant portion of Canada's private wealth. In 2023-2024, the CRA conducted over 700 tax audits, generating a total tax impact of $1.8 billion. [...]
READ

Maximizing Business Value With EBITDA: Calculation, Finance and Valuation

EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) is a key financial indicator used in the world of business valuation. It is used to assess business performance and plays a crucial role in acquisitions and buyouts, enabling investors to make informed decisions about a company's financial health. In this article, we'll explore EBITDA in [...]
READ

Tax Credit for Charitable Donations

Charitable donations offer significant tax advantages in Canada. In fact, when made by an individual, charitable donations may qualify for a non-refundable tax credit. In the case of a corporation, the tax advantage lies in a deduction in calculating the corporation's taxable income. For individuals, the federal tax credit is 15% on the first $200 [...]
READ

GST/QST Break, the Hidden Consequences

Companies incurring food and beverage expenses during this period will therefore not pay GST/HST on these expenses. They will need to adjust their accounting systems to avoid claiming input tax credits on these categories of expenditure. It’s worth remembering that the treatment of GST/HST is parallel to the treatment of meals and entertainment expenses for income tax purposes.

READ

The Québec agrifood industry: between resilience and challenges

Present in every region of Quebec, the agri-food industry is an essential component of the economy and of people's daily lives. It goes far beyond primary production, encompassing processing, distribution and retailing, supporting a value chain that is vital to local economies. With over 75,000 businesses, this dynamic sector contributes to the province's food self-sufficiency [...]
READ
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval