February 18, 2021

Preparing for a Potential Tax Hike on Capital Gains

It is expected that a Federal Budget will be released sometime in March or April.  As is usual in the days leading to the Federal Budget, there is speculation of […]

It is expected that a Federal Budget will be released sometime in March or April.  As is usual in the days leading to the Federal Budget, there is speculation of a potential tax hike on capital gains.  Many advisors are speculating that the unprecedented spending on COVID-19 programs (making the projected size of the deficit to almost $400-billion) makes a capital gains tax increase more likely.

The current capital gains inclusion rate is 50%.  There was a time when the capital gains inclusion rate was 75%.  Is there a chance that it can go there again?  Would the federal and provincial governments like to increase tax revenue? 

Previous capital gains inclusion rate changes occurred on a specific date.  Hence, it was possible, for capital gains realized in a taxation year to be subject to different inclusion rates.  If the capital gains inclusion rate is increased as a result of the Federal Budget, capital gains realized prior to the Federal Budget date would most likely be included in income at the 50% inclusion rate and capital gains realized after the Federal Budget date would be included in income at the new rate.

If a taxpayer holds property with significant inherent capital gains, questions arise if they should crystallize the capital gain in light of a possible change to the inclusion rate. It is worth a discussion to address the possibility of a capital gains tax increase with your advisor, even if it is only speculation at this point. There may also be planning options available involving spouses, common-law partners, and the use of holding companies. There is a lot to consider regarding a potential tax hike on capital gains. 

If you think the above may apply to you, our tax team here at Catalyst is ready to guide you and offer advice. Please reach out to your trusted Catalyst advisor or inquire@thecatalystgroup.ca 

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