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Ottawa moves to raise inclusion rate on capital gains taxes in 2024 budget



Ottawa is gearing up for significant changes to capital gains taxes, aiming to address disparities in the tax system. The federal government's Budget 2024 proposes raising the inclusion rate on capital gains taxes, a move expected to primarily affect wealthy individuals and corporations. Finance Minister Chrystia Freeland presented the budget on Tuesday, outlining adjustments that could yield approximately $21.9 billion in revenue over five years.


The proposed alteration targets capital gains realized annually beyond $250,000 for individuals and all capital gains for corporations and trusts. Currently set at one-half, the inclusion rate would increase to two-thirds effective June 25, 2024, pending amendments to the Income Tax Act.


Notably, only a fraction of Canadian companies, roughly 12 percent, and individuals with average incomes exceeding $1.42 million, approximately 0.13 percent, are projected to experience heightened tax obligations due to these changes.


John Oakey, VP of taxation at CPA Canada, suggested that some may rush to capitalize on existing rules before the new ones take effect. He emphasized the need for strategic planning, especially regarding potential capital gains triggers.


Middle-class Canadians are assured continued benefits from various exemptions, including the $250,000 annual threshold, tax-free savings accounts, principal residence exemptions, and exemptions for registered pension plans.


Illustrating the impact, the Department of Finance offered an example involving a high-income earner in Ontario. Under current rules, such an individual would pay taxes on only half of their capital gains. However, under the proposed regulations, effective in 2025, the tax obligation would increase significantly.


Addressing concerns about fairness, the government emphasized that only a minute fraction of individuals under 30 are expected to surpass the $250,000 threshold in capital gains income by 2025.


Comparatively, the federal government highlighted Canada's tax system among its G7 counterparts, asserting that adjustments aim to rectify imbalances favoring wealthy individuals.


Despite apprehensions about increased tax burdens, particularly amid substantial new spending measures, the government remains committed to fiscal responsibility. Previous spending announcements, coupled with the need to manage deficits, have led to speculation regarding potential tax hikes.


Incentives for entrepreneurship are also a key feature of Budget 2024. The Canadian Entrepreneurs’ Incentive proposes a reduced inclusion rate of 33.3 percent on eligible capital gains, offering a lifeline to budding business owners. This initiative seeks to foster innovation and growth, with gradual increases in the exemption limit planned over the coming years.


As the federal government navigates economic challenges, balancing fiscal priorities and taxation strategies remains pivotal in ensuring equitable outcomes for Canadians across all income brackets.


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