On April 16, 2024, the Federal Government released its 2024 budget. One of the biggest tax changes in the budget relates to capital gains. Under current rules, only 50% of realized capital gains are included in taxable income. The other 50% of the capital gain is not taxable. Under the proposed changes in the budget, capital gains for individuals will still be subject to the 50% income inclusion on the first $250,000 of gains, however any gains in excess of $250,000 will be subject to 66.67% income inclusion. For corporations, the new 66.67% income inclusion will apply on all capital gains. These proposed changes will be effective for gains realized on or after June 25, 2024.

For corporations there is a second component of this tax increase that may not be obvious on first reading of the budget documents. Currently, the 50% of capital gains that are not taxable are added to what is called the Capital Dividend Account. This tax-free portion of capital gains can be paid out of this account to shareholders as tax-free capital dividends. After the rules change, only 33.33% of the gain realized by the corporation will be available to pay out to shareholders as a tax-free dividend. This will result in higher personal taxes in addition to the higher corporate tax.

Because these proposed changes are effective June 25th, there are approximately 2 months available to determine if there is a benefit to realizing capital gains now under the current rules versus waiting and realizing the capital gains later under the new rules. The rules and tax implications are complex, so you should talk to your tax advisor and your investment advisor to discuss the pros and cons of triggering capital gains prior to June 25th.