Capital gains Taxation

In Canada, capital gains tax is applied to the profit from the sale of investments or assets like stocks, real estate (excluding your primary residence), or other properties. The key point about capital gains tax is that only 50% of the gain is taxable at your regular income tax rate.

Regarding recent changes, the Canadian government occasionally adjusts tax rates, introduces new policies, or announces consultations for reform. As of now, there haven’t been drastic, sweeping changes to the capital gains tax system in Canada, but here are some key things to keep in mind:

1. 50% Inclusion Rate: The capital gains inclusion rate, which determines what portion of your capital gain is taxable, has remained at 50% for many years. That means if you make a capital gain of $10,000, only $5,000 is taxable.
2. Primary Residence Exemption: One notable exception is the primary residence exemption, where you can exclude capital gains from selling your primary home (as long as you meet specific conditions). However, if the home was used for income-generating purposes, you may have to report and pay tax on a portion of the capital gain.
3. Potential Future Changes:
   • As of now, the capital gains inclusion rate in Canada remains at 50%, meaning only 50% of a capital gain is taxable at your marginal tax rate. However, you’re referring to a 6% inclusion rate, which would represent a potential change that could occur in the future but has not been implemented yet.
   • If the inclusion rate were to be raised to 6%, it would mean that a greater portion of your capital gains would be subject to taxation. For example, if you made a $10,000 capital gain, only $3,333 would be excluded, and $6,667 would be taxable at your applicable income tax rate.

4. Why the Inclusion Rate Matters:
   • Tax Impact: The higher the inclusion rate, the more of your capital gains are taxed. So, if the government were to raise the inclusion rate to 6%, it would increase the effective tax burden on individuals who are selling investments or assets that have been appreciated.
   • Wealth Redistribution: Governments sometimes discuss increasing the inclusion rate for higher-income earners to address wealth inequality or to generate additional tax revenue. The current 50% rate has been in place for a long time, but discussions about raising it have been part of broader tax policy debates.
   • No official change yet: While there are occasional discussions in government or economic circles about increasing the inclusion rate (possibly to 75% or 100%), there has been no official announcement or confirmed legislation about changing the rate to 6%.

Further Resources

Additional information about the Underused Housing Act can be found on the CRA website using the following links:

Capital gains

Calculating and reporting your capital gains and losses

Contact Us

The team at Monika Gupta CPA Professional Corp is here to provide expert guidance and support on navigating the complexities of Capital Gains Tax for personal and business. Should you require further assistance or information, feel free to reach out to us at info@cpamg.ca or call us at +1 416-748-1329.