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The threat of a higher capital gains tax rate is resurfacing as Ottawa looks for ways to pay down a soaring deficit amid billions in spending on pandemic-relief measures.
Over the last year, there has been considerable speculation (like most other things these days) about the Federal Government increasing the inclusion rate of capital gains tax in Canada. Although the concept of capital gains tax is not new to Canadians, there have been several changes to the rate of taxation since its introduction in 1972. When the tax was first introduced to Canada, the inclusion rate was 50%. This increased to 75% in 1990 and was then reduced back to 50% in 2000, where it has remained for the last 20 years.
With the potential increase of the inclusion rate looming, there is no time like the present to start planning for the future. For example, if you are planning on selling your real estate portfolio in the near future, you may want to consider closing your sale sooner rather than later, to realize a capital gain under the current 50% inclusion rate to avoid the potential increase to 75%.
Or, in some situations, it may make sense to structure the sale or transfer of property now, in order to trigger a capital gain. For example if there is a sale expected in the near future it may make sense to consider structuring a sale to a holding company or another company in order to trigger a capital gain early. Even if you are selling to your holding company or another company of yours, the transfer or sale would occur at fair market value which would trigger a capital gain. Additionally, if you have an estate plan with intergenerational plans, you could potentially gift your assets early to trigger capital gains now, rather than at a higher inclusion. In both cases, there will be taxes owing and if the taxes are significant, you should plan on how you will finance repaying them.
Until the Federal Government announces any changes during the 2021 federal budget announcement. you and your professional tax advisors should discuss whether or not it is worth planning and strategizing in advance to hopefully minimize capital gains taxes in the future.
Please contact us for further assistance with these matters.
The information provided on this page is intended to provide general information.