Higher Capital Gains Taxes Coming To Town!?

The recently released article in Maclean’s talked about how to tax the wealthy without imposing a wealth tax. The article has also suggested our Ministry of Finance to investigate our preferential treatment of income from capital gains (which is currently only 50% taxable).  Unsurprisingly, USA has already proposed the increase in the capital gain tax rate recently. Therefore, Canadians, let’s brace ourselves with the change in our capital gain tax rate in the upcoming tax reform!

Canadians with appreciated assets should consider the potential increase in their taxes IF the income inclusion rate increases to either 67%, 75% or 100%.

As illustrated in the example below, which is based on the top marginal tax rate for individuals in Ontario for a capital gain of $1 million, the increase in taxes in response to the increased inclusion rate could be substantial!

What should I do?

Tax-saving options are always available to minimize your tax costs on your potential capital gains! You should plan ahead and choose an optimal tax-saving strategy by taking into consideration other costs such as land transfer taxes, GST, or other cash flow considerations if you are prepaying the tax on capital gains now.

When should I discuss with my tax advisor?

Consult your tax accountant if:

  • You own an appreciated investment property;
  • You are the owner of a property holding company, in which you intend to give/gift the property to your children;
  • You operate a profitable business that has increased in value (not from real property);
  • You own a family business where your children are also involved in the business, but the shares of the business are currently owned by you and your spouse; or
  • You have a business with potential increase of value in the future.

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.