On June 10, 2024, drafted legislation was released regarding the proposed changes to capital gains previously announced in the earlier 2024 Federal Budget. The announcement reaffirmed that the changes are intended to become effective beginning June 25, 2024, and additional information was provided regarding the transition to these rules.
Some of the most notable details and clarifications include:
- The 66.67% inclusion rate (increased from 50%) will apply to capital gains which are above the annual threshold for individuals or for all capital gains realized by corporations or other entities.
- The $250,000 annual per-person threshold will apply to maintain the 50% inclusion rate. This also means:
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- Joint property owners will be able to access this threshold for each individual. This will allow up to $500,000 of capital gains at 50% inclusion for spouses who jointly own a property sold after June 25, 2024.
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- This threshold will apply to individuals from June 25, 2024, to December 31, 2024, and will not be pro-rated for the shortened 2024 period.
- For tax years that have periods spanning both before and after the June 24, 2024 effective date, capital gains will be traced to determine the rules applicable to that specific scenario.
- Capital gains incurred by trusts and partnerships allocated to beneficiaries/partners/investors will similarly be traced as pre- or post-change.
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- This means capital gains that are allocated to individuals after June 24, 2024 will have access to the $250,000 annual threshold.
- Capital gains reserves will not be traced to pre- or post-change timelines. They will, however, be subject to the applicable inclusion rate for the year.
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- Please note that a gains reserve amount would be considered a gain for the first day of the following year. For example, an individual claiming a capital gains reserve for a 2023 capital gain may have the remaining reserve amount included at the 50% inclusion rate for 2024 (where no reserve for 2024 claimed) since it would be considered a capital gain on January 1, 2024.
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- Accelerating these gains may impact the payment timeline and any related instalments.
- Additional tax rules currently tied to the 50% inclusion rate have also been updated to reflect the change 66.67%.
- The Lifetime Capital Gains exemption (LCGE) limit will be increased to $1,250,000 (up from $1,016,836), as previously proposed.
- Currently, no changes to the Principal Residence Exemption (PRE) have been proposed as part of these rules.
If you have further questions about these changes and how they may impact your specific situation, please reach out to your trusted RLB Advisor today.
