New Capital Gains Rules

With the recent budget announcement coming from the PMO, specifically as it relates to the Capital Gains Inclusion Rate, we thought it was timely to release a few of our thoughts and a call to action. If you are an individual with a non registered account that has significant capital gains, a secondary property (cottage or rental property) or any investment you think might apply to this announcement OR if you have a corporation set up for your business or profession, please read the following points and reach out to us if you have any questions:

Options for Individuals

1. Sell capital assets that have appreciated before June 25, 2024, to take advantage of the current capital gains inclusion rate of 50%.
2. After June 25, 2024, use the $250,000 exemption each year to retain the 50% capital gains inclusion rate.
3. Sell capital assets that have a loss prior to June 25, 2024.
4. If you have capital losses that you have carried forward, use them against gains taken after June 25, 2024, as they will count at the 2/3rds inclusion rate, which is more effective in offsetting the higher inclusion rate.
5. For property such as second home, sell if you can in the short window of opportunity and remember to claim capital improvements and other eligible expenses against the gains.
6. Use universal life policies to shelter (eliminate taxable gains) and to provide a tax-free death benefit for estate planning.

Options for Corporations and Trusts

1. Sell assets that have capital gains prior to June 25, 2024, as there is no $250,000 exemptions for corporations and trusts.
2. As with individuals, trigger capital losses prior to June 25, 2024, for an improved offset.
3. Use universal life policies to tax shelter investment growth and provide liquidity on the death of the principal shareholder and a tax free death benefit.

Planning Tips and Thoughts

1. By triggering gains now, you have tax payable now, which will reduce the amount of funds that you will have to re-invest. It could take up to eight years regain the lost tax payable.
2. For those individuals who have the flexibility to trigger gains of $250,000 or less do so each year to reduce their taxable inclusion rate.
3. Consider the purchase of universal life insurance as a tax shelter and a capital gains elimination strategy. This strategy can work for both individuals and corporations.
4. Corporate Class mutual funds with a T-SWP could reduce future gains for individuals.
5. Wait and do nothing. There could be a change of government in the year and a new government might be inclined to roll back the legislation. While this is not assured, it may not occur leaving you with the higher tax bill.
6. Each individual and corporate situation is unique. You should speak to your financial advisor and tax advisor to determine your best course of action.