The government is committed to tax fairness for Canadians. Today, Canadians pay tax on the income from their job. But currently, they only pay taxes on 50 per cent of capital gains, which is the profit generally made when an asset, such as stocks or a rental property, is sold.
Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, tabled a Notice of Ways and Means Motion in Parliament to deliver greater tax fairness and implement the changes in capital gains taxation announced in Budget 2024.
As of June 25, 2024, the capital gains inclusion rate-the amount of capital gains that are taxable-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 will make Canada's tax system fairer and raise $19.4 billion over five years to pay for investments to build nearly 4 million new homes, to make life cost less, and to grow the economy-for every generation, particularly Millennials and Gen Z.
To ensure most middle class Canadians and entrepreneurs do not pay more tax, the government is maintaining existing capital gains exemptions and creating new exemptions, including:
- Maintaining the Principal Residence Exemption, to ensure Canadians do not pay capital gains taxes when selling their home. Any amount you make when you sell your home will remain tax-free.
- A new $250,000 Annual Threshold for Canadians, effective June 25, 2024, to ensure individuals earning modest capital gains continue to benefit from the current one-half inclusion rate. Capital gains, including on the sale of a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax.
- Increasing the Lifetime Capital Gains Exemption to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. With this increase, Canadians with eligible capital gains below $2.25 million will pay less tax and be better off.
- A new Canadian Entrepreneurs' Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs will pay less tax and be better off on capital gains of up to $6.25 million.
The government is increasing the capital gains inclusion rate-with the above exemptions-to make Canada's tax system fairer. Currently, wealthy individuals can face a lower marginal tax rate on their capital gains than what a middle class worker would face on their paycheque. For instance, a nurse in Ontario earning $70,000 would face a combined federal-provincial marginal tax rate of 29.7 per cent. In comparison, a wealthy individual in Ontario with $1 million of capital gains income would face a marginal tax rate of 26.8 per cent.
Through Budget 2024, the federal government is building a fairer Canada, where every generation can reach their full potential. We are making Canada's tax system fairer by asking the very wealthiest to pay their fair share-so that we can make investments in prosperity for every generation.
