Government Implements Capital Gains Tax Reforms Alongside New Entrepreneurship Incentives

Ottawa, ON – In a move aimed at enhancing tax fairness and funding vital investments, the Canadian government has announced significant changes to the capital gains tax regime, alongside the introduction of new incentives to support entrepreneurship. The reforms, outlined in Budget 2024 and spearheaded by the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, mark a pivotal shift in the nation’s tax landscape.

Effective June 25, 2024, the capital gains inclusion rate—the portion of capital gains subject to taxation—will increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. This adjustment is projected to generate $19.4 billion over five years, aimed at funding crucial investments in housing, cost of living, and economic growth, particularly benefiting Millennials and Gen Z.

It’s time to change the capital gains tax. Here’s why: pic.twitter.com/a1X1z8rFTu

— Justin Trudeau (@JustinTrudeau) May 13, 2024

Despite these changes, the government is keen to ensure fairness for middle-class Canadians and entrepreneurs. To mitigate the impact of increased taxation, several exemptions and thresholds have been introduced:

• Principal Residence Exemption Maintenance: Canadians will continue to benefit from the Principal Residence Exemption, ensuring no capital gains taxes are levied when selling their primary residence.
• $250,000 Annual Threshold: A new threshold effective June 25, 2024, will protect individuals earning modest capital gains, maintaining the current one-half inclusion rate for eligible gains. This threshold extends to the sale of secondary properties, such as cottages, providing relief for couples selling properties with significant capital gains.
• Increased Lifetime Capital Gains Exemption: The lifetime capital gains exemption for small business shares, farming, and fishing property will rise to $1.25 million, offering relief to Canadians with eligible gains below $2.25 million.
• Canadian Entrepreneurs’ Incentive: To stimulate entrepreneurship, the government will reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. Combined with the increased lifetime exemption, this incentive aims to support entrepreneurs with gains of up to $6.25 million.

The government’s decision to adjust the capital gains inclusion rate underscores its commitment to tax fairness. By ensuring the wealthiest individuals contribute their fair share, the government aims to build a fairer Canada where prosperity is accessible to all generations.

Budget 2024 signals a bold step towards a more equitable tax system, balancing the need for revenue generation with measures to support entrepreneurship and economic growth. As these reforms take effect, Canadians can expect a recalibration of the tax landscape, promoting fairness and opportunity for all.