ANALYSIS: Higher Income Taxes Not Only for Wealthy in Liberal Budget 2024

Analysis: Increased Income Taxes Proposed for All Taxpayers in Liberal Budget 2024

April 18, 2024 TruthUSA

Millions of Canadian men and women and hundreds of thousands of businesses are set to face increased taxes on the sale of homes, stocks, and other assets in the upcoming years under the proposed Liberal budget, affecting not just the super wealthy.

The proposed plan to tax a larger portion of investment profits through a higher “inclusion rate” on capital gains has sparked discussion among economists, accountants, and regular citizens since its presentation by the Liberals on April 16.

Currently, individuals are required to pay tax on 50 percent of capital gains. The new regulations involve paying 50 percent on the first $250,000 and 66.7 percent on any amount above that threshold. Similarly, businesses will transition from being taxed on 50 percent of their capital gains to 66.7 percent.

Highlighting the impact of this change, Borden Ladner Gervais LLP mentioned on its website, “The increase in the capital gain inclusion rate is a significant revenue-generating amendment from Budget 2024 and will affect many Canadians beyond the ultra-rich. Individuals owning a single investment property or secondary residence will face considerable additional taxes on the sale of their property.”

The Liberals anticipate generating nearly one-third of their five-year target of $19.4 billion through this change in the current year, as individuals rush to sell assets before the higher tax rate applies on June 25. They are also planning adjustments to the lifetime capital gains exemption and other provisions for entrepreneurs.

“The boldest tax measure in Budget 2024 is the proposed increase in the capital gains inclusion rate from one-half to two-thirds for capital gains realized on or after June 25, 2024, with limited annual relief for individuals,” stated Aird Berlis, a Toronto-based law firm, on its website.

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It’s not just the wealthy being affected. Even individuals with low or no income who earn a one-time gain surpassing $250,000 would feel the impact.

The Liberals estimate around 40,000 people, or 0.13 percent of the population, will face increased tax due to the rise in the capital gains inclusion rate in any given year.

Many are now hurriedly deciding whether it’s advisable to sell before the changes become effective, affecting not only their taxes but also the housing supply.

Additionally, individuals who inherit assets from a deceased parent or spouse could also see a higher tax bill if the estate falls under the policy modification.

“This change will lead to a significant increase in an individual’s estate tax liability,” remarked MNP, an accounting and tax firm, on its website.

The Liberals are proposing the highest capital gains taxes in decades to fund their increased expenditure on government programs and escalating debt. The rate was lowered to 50 percent in 2000 by the former Liberal government of Jean Chrétien, where it has remained until now.

Aird Berlis remarked, “The impact of this change will be profound, resulting in a much higher tax on death for individuals and lower after-tax return to investors and stakeholders on standard commercial transactions, and neutralizing the benefit of an attempted capital gains strip transaction.”

What Is Changing

The Liberals plan to raise taxes on capital gains for individuals and corporations.

When Was the Change Announced

The Liberals announced the planned changes on April 16 as part of their proposed budget.

When Does the Change Take Effect

If the budget is approved, the changes take effect on June 25.

Definitions

Capital gains are your profit when you sell capital assets or property such as a home or cottage, and financial products such as stocks, bonds, and mutual funds. If you lose money on the sale, you have a capital loss.
The inclusion rate is the portion of your profit that the government deems taxable.
The profit is treated as income, so you pay more income tax.

Who Is Targeted

Individuals
- Current Law: You pay income tax on 50 percent of your capital gains.
- Beginning June 25 if proposed budget becomes law: You pay income tax on 50 percent of your capital gains up to $250,000, and you pay income tax on 66.7 percent of capital gains over that amount.
Corporations and Trusts
- Current law: Pay tax on 50 percent of capital gains.
- Planned law: Pay tax on 66.7 percent of capital gains.

Who Is Exempt

People selling their primary residence.
People booking gains from funds in a Registered Retirement Savings Plan, Tax-Free Savings Account, Tax-Free First Home Savings Account, or other registered savings vehicle.

Example

Let’s say you make a theoretical profit of $300,000 from selling a second home and some stocks.

If you close the deal before the tax changes, you’d pay income tax on $150,000 of the capital gain. If you close the deal after, you’d pay income tax on $158,333.

Here’s the math:

Under current tax law if you sell by June 24: You’d pay income tax on 50 percent of the capital gain of $300,000, or $150,000. You wouldn’t pay income tax on the other $150,000.
If proposed budget becomes law and you sell on or after June 25: You’d pay income tax on 50 percent of the profit up to $250,000, or $125,000. And you’d pay income tax on 66.7 percent of the remaining $50,000, or $33,333.

Total capital gain included for taxation: $125,000 + $33,333 = $158,333.

The Liberals provided an example in their budget documents where an individual earning $400,000 a year would pay an additional $4,461 in federal and provincial income tax due to the planned changes and the highest marginal tax rate.

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