The Federal Budget’s Increase To Capital Gains Tax. How This Impacts The Future Of Canadian Real Estate.
Posted By: Rachel Kavanagh
On April 16, the federal government unveiled the latest budget, which includes substantial modifications to the capital gains tax that will greatly impact real estate owners nationwide. These changes, scheduled to come into effect on June 25, 2024, are expected to have a notable effect on real estate investors and homeowners across Canada, as well as those who own Markham real estate, Unionville real estate and Stouffville real estate. Let’s explore these changes and their potential repercussions in two sections: adjustments to the capital gains tax and other measures aimed at promoting homeownership.
CAPITAL GAINS TAX CHANGES
Under the current tax regime, 50% of an individual’s capital gain is taxable as income. However, under the new rules introduced in the 2024 federal budget, 66.6% of capital gains for individuals over $250,000 will be taxable. The original tax rate of 50% still applies to gains under $250,000.
For corporations that own real estate, two-thirds of the entire gain will be taxable under the new rules. This change is expected to impact Canadians across various financial brackets, contrary to the belief that it would only affect the wealthy.
IMPACT ON CANADIANS
Many Canadians could face increased tax liabilities in years when they experience significant financial events such as the sale of an investment property, a family cottage, or an inheritance from a family estate. To illustrate, let’s consider two scenarios:
1. Capital Gain of $1,000,000: Under the previous tax rules, 50% of the gain ($500,000) was taxable at the individual’s marginal tax rate, resulting in a tax payable of $267,550. With the new tax rate, the tax payable will increase to $334,563, an increase of $66,913.
2. Capital Gain of $500,000: Previously, the tax payable on a $500,000 gain was $133,825. This has now increased to $156,129, reflecting an increase of $22,304.
For corporations selling real estate, the gain is now taxable at 66.66%. For instance, on a $1,000,000 gain, the corporation would have previously paid $251,000 in taxes. Under the new rules, it will pay $334,633.20, an increase of $83,633.20.
CONCLUSION
The changes to the capital gains tax rules introduced in the 2024 federal budget will have significant implications for real estate owners and investors in Markham, Unionville, Stouffville and across Canada. It is important for individuals and corporations to assess these changes carefully and consider their impact on their financial planning and real estate investments. Our experienced team here at RE/MAX All-Stars Benczik Kavanagh Team will be happy to answer any of your real estate questions pertaining to the federal budget.
