Here's what changes to Canada’s capital gains tax really mean
It seems everybody’s a little confused — including ChatGPT-wielding politicians — about Canada’s new capital gains tax rules, so let’s clear some things up.
What happened: Canada’s new capital gains tax inclusion rate is now in effect. Two-thirds of the money made off an investment — if the profit is over $250,000 — will now be considered taxable income for people, up from a rate of one-half.
How it works: Let’s say you bought a cottage for $100,000 in 2000 and sell it for $700,000, making $600,000 from the sale. The first $250,000 is taxed at the 50% inclusion rate. That, and the two-thirds of the remaining $350,000, is taxed as your income.
- Gains from the sale of primary residences are exempt, and up to $1.25 million is exempt on sales of small business shares and farming or fishing properties.
Is that high? Canada doesn’t have a flat capital gains tax rate like most countries, but high taxes for top earners can drive up the rate. It’s all relative, though: In France, the $600,000 you made from selling that cottage would be taxed at a flat rate of 30% (plus an extra 4% for high earners).
- That means you would pay $204,000 on the above cottage sale as a top earner compared to the ~$192,000 you might pay in Ontario’s top bracket.
Bottom line: The feds say the changes will drum up $19.4 billion over five years and affect 0.13% of the population. Critics and lobby groups argue it will kill innovation and hurt the middle class. The next few years will show if either side is right.
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