Before the 2024 Federal Budget, all capital gains, earned personally or in a corporation taxed the same – 50 percent inclusion rate. Post 2024 Federal Budget, all capital gains earned in a corporation taxed at an inclusion rate of 66.67 percent. Capital gains earned personally is taxed at 50 percent inclusion rate for the first $250K and then increases to 66.67 percent inclusion rate on amounts above this annually.
Overall, taxes are higher after the 2024 budget. Hence, taking advantage of tax planning opportunity all the more important.
The inclusion rate to 66.67 percent is effectively a 33.33 percent increase in taxes regardless of the tax bracket. There are tax planning opportunities individual taxpayers can undertake to avoid the 66.67 inclusion rate (most years).
Capital Gain Tips for BC Taxpayers
Income splitting with the spouse on capital gains is the most obvious way to double the $ 250K. This is because each taxpayer is provided 50 percent inclusion rate on the first $ 250K annually. If stock portfolio, bitcoins, or the cottage is equally owned by both spouses, in the year of disposition, each spouse gets the $ 250K. Also, liquid assets such as stocks can be sold to crystallize gains not exceeding $ 250K annually. As for real estate that has appreciated greatly, well $ 250K per spouse is better than one.
Capital Gains For BC Seniors
Another group of taxpayers greatly impacted by the $ 250K rule is seniors. Seniors have assets that have appreciated greatly in their unregistered accounts. In the year of death, all assets are deemed to be disposed of at fair market value and triggering capital gains that could well exceed $ 250K. Two planning opportunities are to crystallize gains not exceeding $ 250K annually and hold off crystallizing capital losses until the year of death.
Corporate Tax Planning Vancouver, BC
As for corporate retained earnings, before the 2024 budget, the general rule of thumb was to remunerate the shareholder just enough to pay for personal living expenses while the corporation invests the retained earnings. However, with the 66.67 inclusion rate at the corporate level, maximizing the RRSP, TFSA, and FHSA contribution rooms makes math sense. After all, capital gains earned within a corporation is also subjected to the refundable tax regime which forces the corporations to pay very high taxes upfront and part of these taxes are only refunded back to the corporation when dividends are issued to the shareholder. These complexities are avoided on capital gains earned personally, in registered and unregistered accounts. Hence, post 2024 Federal Budget, switching to payroll, maximizing RRSP, FHSA, and TFSA contributions and reducing corporate retained earning could make math sense.
The 2024 Federal Budget passed only recently. Stay tune this fall for new tax planning discussions as tax advisors digest and calculate the new rules.
