Navigating the Impact of Upcoming Tax Changes on your Financial Situation | The Northwood Perspective (2024)

Understanding the Proposed Changes to the Capital Gains Inclusion Rate

The 2024 federal budget, released in April 2024, includes a number of proposed tax changes, the most notable of which, is the increase in the capital gains inclusion rate. Under the current Canadian tax system, if an investor disposes of capital property for a profit, only 50% of the capital gain is included in taxable income, with the exception of a capital gain realized on the sale of a principal residence, which is fully tax exempt. If you are in the top income tax bracket, this translate to a tax rate of around 26.7%.

The capital gains inclusion rate is not static and has changed over time under different governments. For example, from 1985-88, the inclusion rate was 50%, from 1988-89, it was 66%, and from 1990-99, it was 75%. Part of the significance of the currently proposed change is that the inclusion rate has been set at 50% since 2001 (23 years) and investors have become accustomed to that rate.

The 2024 budget proposes to increase the capital gains inclusion rate from 50% to 66% for corporations and trusts, and from 50% to 66% for individuals on the portion of capital gains realized during the year that exceed a threshold of $250K, for transactions occurring on or after June 25, 2024. Currently, the highest marginal tax rate for capital gains realized by a person resident in Ontario is 26.7%, but starting June 25, 2024, individuals will be subject to a tax rate of 35.7% on any capital gain in excess of the $250K threshold. This effective increase of nine percentage points could result in a meaningful increase in an individual’s tax liability for those crystalizing more than $250K of capital gains in a given tax year. The $250K threshold is only available to individuals and has not been extended to corporations or holding companies.

One area where questions have arisen from clients is the future viability of family trusts given that all capital gains generated in these entities will also be subject to the higher inclusion rate of 66%. Despite this fact, trusts can continue to generate realized capital gains and allocate them to beneficiaries up to each individual’s $250K limit in order to ensure these realized capital gains are ultimately taxed at the lower inclusion rate of 50%. This means that a trust with four beneficiaries, for example, could generate $1 million in realized capital gains during a tax year and allocate all of the gains out to the beneficiaries equally without any of the gains being subject to the higher inclusion rate, assuming the beneficiaries had no other realized capital gains to report on their tax returns.

Navigating the Impact of Upcoming Tax Changes on your Financial Situation | The Northwood Perspective (1)

Important Considerations Ahead of the June 25th Deadline

Portfolio Securities

For families that regularly draw on their investment portfolios to fund their annual spending needs, a portion of the funds withdrawn may come from the portfolio’s yield (interest and dividend income) and another portion may come from the sale of assets in the portfolio that have appreciated in value over time. Because the sale of appreciated assets results in realized capital gains, the higher capital gains inclusion rate will mean more tax owed on the sale of those assets to fund spending. Some families may choose to accelerate portfolio asset sales to fund the next few years of lifestyle spending before the deadline, to avoid being subject to the higher inclusion rate.

Another situation that warrants consideration is the strategy involved in managing a concentrated stock position. Warren Buffett famously said, “Diversification may preserve wealth, but concentration builds wealth.” Along those lines, many affluent families have accumulated wealth through concentrated equity exposure to a single successful company, but in an effort to reduce risk and preserve the family’s wealth for future generations, they diversify. This generally involves selling portions of a concentrated stock position over time and reallocating the after-tax proceeds to other financial assets in their portfolio. The key here is the term “after-tax”.

Because selling shares of a concentrated stock position typically means triggering capital gains, the higher capital gains inclusion rate will result in a smaller amount of after-tax proceeds available to benefit from reinvestment and compounding growth. For families who are either in the process of, or are considering, reducing a concentrated stock position, it may be worth considering accelerating stock sales ahead of the June 25th deadline in order to be subject to the lower capital gains inclusion rate and a lower ultimate tax liability.

Real Estate & Other Assets

When it comes to real estate and other assets, the very tight June 25th deadline makes transacting in time challenging. If you have real estate for sale or were planning to sell soon, there are strategies to trigger the gain today at the lower tax rate, even if the asset has not yet been sold. Various considerations must be addressed when making these decisions and it’s important to discuss with your advisors.


It’s always important not to let “the tax tail wag the dog,” which means that the benefit of reducing a tax liability should always be considered in the context of a family’s overall financial situation and ability to achieve their goals and objectives.

Adam Bradshaw

Adam is a member Northwood’s family office advisory group, working with families in the areas of financial planning, investment management, and taxation.

Navigating the Impact of Upcoming Tax Changes on your Financial Situation | The Northwood Perspective (2024)
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