I’ve been doing taxes for 21 years now, and I’ve seen a lot of changes in that time.

But that doesn’t make it any easier when the federal government rolls out their latest shortsighted plan to close loopholes in the Income Tax Act. Except that in this case, with the increase to the Capital Gains Inclusion Amount that goes into effect on June 25, 2024, there’s no loophole being closed.

Rather, they’re rolling back the inclusion amount to what it was from 1988 to 1989 (and beating a very dead horse called Still Lower Than What It Was In The 1990s), which is two-thirds rather than the current one-half.

These changes are frustrating and confusing, so I hope you've managed to keep a clear head despite all the misinformation that’s been spread and are ready to figure out whether and how this change to the inclusion rate affects you… and if so, what to do about it (if anything). 

If you’re wondering just how to go about that and what you should be doing now to keep paying your fair share — and only your fair share — of taxes, you’re in luck! 

In today’s post, I’m going to cover what’s changing, how it affects you and your business, and outline 4 specific things you should do now to ensure you’re not overpaying taxes on your capital gains in the future. 

Ready? Let's get into it! 

What is the Capital Gains Inclusion Rate Change All About?

In case you haven't heard, when the federal government announced the 2024 budget back in April, one of their extremely controversial announcements was about increasing the capital gains inclusion rate from one-half to two-thirds on capital gains of $250k and up. Canada’s inclusion rate has actually been higher than this in the past… the really controversial and underhanded part of this is the fact this change is going into effect on June 25, 2024. They snuck this in during the last two weeks of personal tax filing season — when Canada’s accountants are still gasping for air following the whiplash changes to bare trust filing requirements on top of all the usual overtime we’re pulling, giving us very little time to learn and absorb the changes our selves. Which is why this particular article isn’t coming out until 2 weeks before you need to decide what to do next if these changes do actually affect you.

Capital Gains Inclusion refers to the amount of a gain you realize on the sale of property or non-registered investments that gets included in your taxable income. Until June 25, 2024, the capital gains inclusion rate in Canada is 50% on all taxable capital gains, for individuals and corporations alike. 

Effective June 25, the annual capital gains inclusion rate for individuals will still be 50% on the first $250,000; anything over that first $250k will have an inclusion rate of two-thirds. 

For corporations the inclusion rate will just be two-thirds. No $250k exemption.

In her opinion piece “A fairer tax system to benefit all Canadians”, published in the National Post on June 11, 2024, Deputy Prime Minister Chrystia Freeland works very hard to sell this change — and I have no bones with what she claims the revenue will be used for. I just wish I could believe her, because in this piece she tells at least one half-truth:

Here’s one consequence of this preferential treatment of capital gains: many of the wealthiest Canadians make most of their money through investments, not income. And we applaud their success. But because of how investment gains are taxed, well-off Canadians can wind up paying a lower overall tax rate than a nurse or a carpenter.

That’s not fair. And so, beginning June 25, well-off Canadians will need to pay tax on two-thirds of their capital gains, instead of just one half.

She also completely omits the fact that there’s no exemption for incorporated small businesses. Why? Because our current federal government erroneously believes that all incorporated small business owners are “tax cheats” and should be punished. (Yes, I’m still salty. 🤣)

3 Things You Should Do Now

People like you and me will always keep a level head because we like to be prepared, so here are three ways you can ensure you don’t pay more tax than you need to when you sell your investments. 

#1. Ensure You Know and Understand What Your Unrealized Capital Gains Are 

Many of your colleagues will respond to this inclusion rate change by running out and selling off a bunch of their investments before they’re ready to, in order to realize their capital gains… convinced they’ll pay lower taxes because of it. This is a panic response and, quite frankly, the very definition of being “penny-wise and pound-foolish.” 

As sucky as this whole change is? Most people do not need to do it. If they’d taken the time to fully understand the impacts this change actually has on their specific situation, they could have saved themselves from a bigger-than-usual tax burden next spring. 

Instead, I advise sitting down and figuring out what your unrealized capital gains are. Do this for any investments you have that are not held in a registered account such as a FHSA, LIRA, RESP, RRSP, or TFSA. You can do this by working with your financial advisor, if you have one, or you can do the math yourself. Adjusted Cost Base.ca is a helpful resource for this, or you can watch episode 7 of the Sunday Night Tax Show: ACB — Easy as 1-2-3.

#2. Get Some Professional Advice 

This may be a no-brainer for you, but the number of people who come to me after they’ve triggered a taxable event for advice on how to deal with it still astonishes me to this day.

As an accountant, I often joke that I’m a time traveler. 

I have to go back in time to the moment a client makes a life-altering decision — usually well over a year after they’ve done it, sometimes even decades later! — and then figure out the best way to manage their tax bill. Going back in time to fix a knee-jerk reaction or poorly planned decision is, in my experience and with few exceptions, much harder to deal with than to sit down and figure out a tax efficient way to draw down your investments. 

Once you’ve got your unrealized capital gains calculated, get in touch with your accountant. They’ll run some scenarios and help you figure out what you should set aside for taxes. Yes, they’re probably going to charge a fee for it. But when the fee is for advice around managing your non-registered investments, it’s tax deductible. And even if it wasn’t… if you are that up in arms over the change to the inclusion rate it’s money well spent.

#3. Avoid Going Rogue

It's only natural to react to the headlines and the clickbait. You’re being hammered with misinformation from well meaning people far more frequently than you’re talking to your accountant, so I understand why it’s so easy to deviate from their meticulous plan to save you money. 😂

Here’s a secret my peers in the industry don’t want you to know: we don’t go into hibernation after April 30th. We’re not exactly twiddling our thumbs either, but we are far more available to help you with questions and situations like this. 

So next time your cousin tells you about the Random Tax Thing they heard from their friend’s neighbour’s aunt, instead of accepting it as true and triggering a taxable event you’ll regret later… consider asking your accountant first. And yes, specifically your accountant. 😉 

Conclusion

Have I addressed your concerns about the changes to the capital gains inclusion rate? I sure hope so.

I’m all about making taxes as painless and stress-free as possible so you can be certain you’re only paying what you’re supposed to.  

That's why I host the Sunday Night Tax Show.

If there's one thing I've learned in 21 years in the industry, it is that our taxation system continues to get more and more complicated by design, and it’s hard for Canadians to access the benefits, credits, and deductions they’re legally entitled to when the CRA wilfully obfuscates them! This information should never be inaccessible, and one of my core values is to share it with as many Canadian makers and creators as possible.

Is your head still swimming with questions? Episode 7 of the Sunday Night Tax Show does a deep dive into capital gains and remember, I’m happy to answer any questions posted here in the comments, in Books Club, or on IG.