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If you’re selling real estate or an investment, you’ll need to understand capital gains—especially with the recent inclusion rate changes from the federal budget.
A capital gain is the increase in value on any asset or security since the time it was purchased, and it is “realized” when the asset or security is sold. (Similarly, a capital loss is realized when you sell an asset that has decreased in value since the time of purchase.) Capital gains (or losses) can happen on stocks, mutual funds and real estate.
You may have heard that 50% of the value of capital gains is considered taxable income. So when you sell your non-registered investments at a higher price than you paid, known as realized capital gains, you have to add 50% of the capital gain to your taxable income that year. How much tax you pay on capital gains depends on the income tax bracket you fall into with the additional income from capital gains.
However, that capital gains inclusion rate changed on June 25, 2024. As part of the annual federal budget, a capital gain of more than $250,000 for an individual, they will be tax 66.67% of the gain as income—up from the current 50% rate. (Read more: Federal Budget 2024: How it will affect Canadians’ finances and taxes.
There are ways to minimize your capital gains and reduce the taxes owed, including investing within registered accounts, timing when you sell, deferring your earnings or selling investments at a loss to offset capital gains.
Example: “I want to sell my cottage before June 25, so that 50% of capital gains is taxable instead of 66.7%.”
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