“Rumour has it...” – Capital Gains Rates

A potential increase in the capital gains inclusion rate next budget could cause an increase in your tax bill

Currently when a capital gain occurs, only 50% of the gain is considered “taxable”. 

  • For a personal taxpayer, this 50% taxable capital gain is subject to the marginal tax rates of the taxpayer; and 
  • For a corporate taxpayer, the 50% is taxable capital gain is subject to investment tax rates, and the non-taxable 50% portion of the gain is added to a “capital dividend account” which can be distributed to shareholders tax-free.

There have been some rumours floating around the accounting community (and beyond) that in the upcoming budget the taxable portion of a capital gain will increase, potentially up to 75%.  This will result in a direct increase in the amount of tax you will have to pay.  In addition to more tax, corporate taxpayers will have less added to their capital dividend account for distribution.

There are a lot of unknowns in this regards.  Will this change be retroactive to previous gains this year?  Will it only be for dispositions after the Budget Day or at some point in the future?  Will this change even occur?

If you are planning to sell property during 2017 it may be advisable to have that sale occur prior to March 22, 2017 as it could result in lower taxes.

Please note that the above is currently speculation, it has not been confirmed by any government bodies and it likely won’t be until the release of the Federal Budget on March 22, 2017.

If you have any questions relating to this matter, contact your tax professionals at Wilkinson & Co. LLP.