Canada Will Increase Capital Gains Tax Starting June 25, 2024

The Canadian federal budget for 2024 proposes significant changes to the capital gains tax. Key points include:

  1. Increased Inclusion Rate: The capital gains tax inclusion rate is set to increase from 50% to 66.67%. This means that a larger portion of capital gains will be taxable.
  2. Effective Date: The new inclusion rate will take effect on June 25, 2024.
  3. Threshold for Individuals: For individuals, the increased rate will apply to capital gains exceeding $250,000. Gains under this threshold will continue to be taxed at the current 50% rate.
  4. Applicability: These changes will impact corporations, trusts, and individuals with substantial capital gains. Primary residences remain exempt from capital gains tax.

For more details, you can refer to the official sources and additional information:

The real estate market’s reception to the upcoming capital gains tax increase in Canada has been varied, with significant concerns raised among investors and developers.

Market Reactions:

  1. Real Estate Investors and Developers:
    • Concerns Over Profits: The increase in the capital gains inclusion rate from 50% to 66.67% means a larger portion of profits from property sales will be taxable. This could lead to reduced returns on investment, making speculative real estate investments less attractive​.
    • Impact on Market Activity: Some experts anticipate that the increased tax burden may slow down the pace of development projects and speculative buying. Investors may shift focus towards long-term holdings rather than short-term property flips​.
  2. Cottage Market:
    • Potential Sell-Off: There is an expectation of a sell-off in the cottage market as owners look to capitalize on current tax rates before the new rules take effect. This could lead to a temporary increase in market activity, followed by a slowdown as the new tax rates are implemented​.
  3. General Investor Sentiment:
    • Reevaluation of Strategies: Investors across the board, including those in stocks and other assets, may reassess their strategies to manage higher tax liabilities. This might include spreading gains over multiple years or seeking assets with more favorable tax treatments​.
    • Political and Economic Debate: The policy has sparked debate on its long-term economic impact, with concerns about potential capital flight to lower-tax jurisdictions and its effects on Canada’s investment attractiveness​.