Last week the Liberals delivered the 2024 Federal Budget, rather than provide you with a comprehensive review, we have selected a couple of significant changes we thought you would be most interested in.
Capital Gains Inclusion Rate
In simple terms, a capital gain or loss is the difference between the purchase price and the sale price of an investment. If you sell the investment for more than what you bought it for, it is considered a capital gain, if the value is less than what you bought it for it is a capital loss.
If you sell an investment and end up with a resulting capital gain, (you made money), you must pay taxes on that capital gain. Currently, you include half (50%) of the gain in your income and pay tax at your marginal tax rate.
For capital gains and losses realized on or after June 25, 2024, the 2024 Budget proposes to increase the capital gains inclusion rate from 50% to 66.67% for corporations and trusts and the portion of realized capital gains that exceed $250,000 for individuals. This change only gives Canadians a ten-week window to prepare or plan for this increase.
For those Canadians that have a family cottage or rental properties, they may be significantly impacted by this increase. Those who have been considering selling their properties are now feeling the pressure to sell before the June 25, 2024, implementation date. Which in turn, may impact the real estate market, flooding the market with properties for sale in the short term.
Estates will also be affected by the capital gains tax increase. When we pass away our investments are deemed sold and therefore trigger capital gains on our final tax return. Some elderly Canadians may want to consider triggering some of their capital gains now; so that they don’t leave behind an even greater tax liability for their loved ones.
Peter Bowen, Vice-President, of Tax and Retirement Research, at Fidelity Investments Canada, says that it doesn’t affect most people but those that it does affect, it’s bad news. It’s the wealthy, it’s the people with investment properties or vacation properties that will have to deal with it rapidly over the next ten weeks.
The Home Buyers Plan
Currently, under the Home Buyer’s Plan (HBP) you are allowed to borrow up to $35000 from your RRSP, tax-free, to purchase or build a qualifying home. This plan is restricted to first-time home buyers who have not owned a home in the past five years. After the withdrawal, the government gives you a two-year window, after which you must start repaying your RRSP 1/15th of the withdrawal for the next fifteen years.
The 2024 Budget proposes to increase the withdrawal limit from $35,000 to $60,000 and extend the grace period to 5 years before you must start repaying your RRSP. When combining the new First Home Savings Account (FHSA) and the increased HBP limit, Canadians will now have more access to funds to purchase their first home. This is great news for young Canadians trying to get into the housing market.
As always, if you have any questions please don’t hesitate to contact us.
Have a great weekend,
Tracey and Paige
Sources:
FidelityConnects: 2024 Federal Budget: What it means for Canadians- https://www.fidelity.ca/en/insights/insights-library/ https://dynamic.ca/content/dam/docs/marketing/commentaries/tax/federal-budget/24DYN027_DF_FederalBudget2024_EN.pdf
Products or services related to investments, investment recommendations, financial planning, retirement planning, and investment reviews are provided through our mutual fund dealer Security Financial Services and Investment Corp. 4665 Yonge Street, Suite 309, Toronto, ON M2N 0B4 t 416.964.0440