Navigating the 2024 Budget: Capital Gains

Canada’s financial landscape shifted significantly with the 2024 Federal Budget, which introduced a pivotal adjustment to the capital gains inclusion rate. For investors and entrepreneurs, understanding these rules is critical for tax efficiency.

The New Rules (Effective June 25, 2024)

For Individuals:

• The first $250,000 of capital gains realized in a year remain at the 50% inclusion rate.
• Any capital gains above $250,000 are now taxed at a 66.67% inclusion rate.

Impact: If you have a massive one-time gain (e.g., selling a cottage or business), your average tax rate on that gain will be higher than in previous years.

For Corporations:

• All capital gains realized within a corporation are now taxed at the 66.67% inclusion rate.
• There is no $250,000 threshold for corporations.

Strategic Planning Considerations

With these rules now in effect, strategic planning is imperative.

1. Break-Even Analysis: We use software to determine if it makes sense to trigger gains intentionally to use the $250k lower bracket spread over multiple years.

2. Asset Location: It may be more tax-efficient to hold certain high-growth assets personally (to use the $250k band) rather than in a corporation.

3. Long-Term Horizon: Despite the higher tax rate, staying invested often beats triggering tax early. For example, a portfolio left to compound for 30 years often outperforms a strategy of selling early just to pay a lower tax rate, due to the loss of compound growth on the tax money paid.

We are here to help you navigate these rules and ensure your portfolio is structured efficiently for the current tax environment.

About Shea Sanche

Shea Sanche, CFP®, is the founder of Insight Planning Wealth Management and has worked as a financial advisor since 1999. He specializes in financial planning, retirement strategy, and decision frameworks for Canadian families and business owners, with a focus on simplifying complex financial decisions and long-term wealth planning.

He is the creator of Insight 360 OS, a decision and life-design system built to help clients navigate financial complexity, uncertainty, and major life transitions.

Common Questions About This Topic

Should I contribute to my RRSP or TFSA in Canada?

It depends on your current vs future tax rate and timeline. RRSPs are powerful when today’s marginal rate is higher than your expected withdrawal rate; TFSAs maximize flexibility and tax-free withdrawals.

How do capital gains taxes work in Canada?

Capital gains are taxed when you sell an asset for more than you paid. Planning focuses on timing, concentration risk, and coordinating gains with your broader income plan.

What is income splitting in Canada?

Income splitting in Canada refers to tax strategies that allow certain income to be shared between spouses or common-law partners under Canadian tax rules to reduce the household’s overall tax burden.