Federal

Capital Gains taxation

Updated January 31, 2025

The taxation of capital gains has been a big topic of discussion this past year.  The government tabled a budget in April 2024 indicating capital gains, which have been taxed on only 50% of the gain for a very long time, would be subject to a higher inclusion rate of 66.66%.  Inclusion rate means the amount of the gain that would be subject to income tax.  It is not the rate of taxation.  Taxation rates are based on your total taxable income from all sources.   How you arrive at the total taxable income depends on what must be included and what can be excluded.  In the case of capital gains, effective June 25, 2024, gains earned by individuals will have an inclusion rate of 66.66% on all gains earned above $250,000.  Gains below $250,000 will retain the 50% inclusion rate.

Breaking news – Government of Canada announces deferral in implementation of change to capital gains inclusion rate

While on the surface, this change sounds like it may only impact wealthy families, that is not necessarily the case.  Individuals and families that own a rental property or have a cottage will see a significant impact when they sell or transfer the property.  Many families in this situation are middle class working families.  Likewise, anyone who invested in real estate as part of a retirement plan will need to carefully review their plans as this new tax hit will have a significant impact on them as well.

Note, the higher inclusion rate will affect corporations and trust/estates differently.  These entities will pay the higher rate on all gains, not only gains above $250,000.

It’s important to note this initiative has not yet passed into law (as of January 2025), though CRA is amending forms and intends to tax income on this basis – assuming it will become law.  A change of government could have a significant impact on this.  We are advised to proceed as if this is law.  CRA will assist taxpayers to amend returns in the future in the event a new government cancels this change, or it does not pass.

Bare Trust Filing Requirements

You may remember the disaster of last spring, when CRA announced Bare Trusts would have to file returns for the first time, but did not notify stakeholders in a timely fashion, resulting in widespread misunderstanding not to mention panic and expense for many folks.  Our firm began contacting clients and opened Trust accounts for clients we knew would need them (though we could not possibly know everyone who would require them). We did not bill anyone for this as no returns were filed since at the 11^th hour, CRA announced they were suspending the requirement for filing.  This fall CRA announced it would further extend this suspension for 2024.  It seems the first time Bare Trusts will be required to file will be for the year 2025, with a filing deadline of March 31^st, 2026, assuming a December 31^st year-end for the trust.

TFSAs – The contribution limit for 2024 and 2025 is $7,000.

OAS Income Limits – For the 2024 tax year, if your taxable income was over $86,912, you would need to repay some of your OAS (Old Age Security). The repayment amount may have been withheld from your OAS payments already, or it may be calculated on your tax return if you received more than you qualified for based on 2024 income.

If your taxable income was over $142,609 (age 65 – 74) OR $148,179 (over age 75), you would not be entitled to any OAS payments.

Canada Dental Benefit

Applications began in the spring of 2024 for taxpayers over age 70 and slightly later for individuals aged 65 to 70 and families with disabled children and/or adults.  The new Canada Dental Care Plan will expand in 2025 to all eligible individuals and families.

Most details can be found here.

Highlights:

To qualify:

• Family net income must be under $90,000 and you must not have insurance that covers dental care.
• MUST have filed a 2023 tax return.
• Sun Life is managing the program for the federal government. If you qualify, and apply online with CRA, they will forward your information to Sun Life, and you will receive a welcome package with details about your coverage.
• All applications must be submitted this spring, before June 30th.
• Start date of the insurance depends on your age group and situation and will be explained in the welcome package. Insurance coverage BEGINS once you are approved and have been contacted by Sun Life.

Equipment and capital asset purchases – Purchases of equipment and other assets that we would typically depreciate, if purchased after January 1, 2023, may qualify for a higher deduction in 2024. Eligible businesses (sole proprietors, partnerships, and corporations) may often fully deduct such purchases, to a maximum of $1.5 million. The property must become available for use before 2025, and the measure applies to most but not all types of capital property.  This program was announced in 2022 and was expected to end in 2024. However, a recent announcement indicated the government may extend the incentive.  Stay tuned!