With all the announcements made before the official tabling of the Freeland budget, many were surprised to discover so many measures having a direct impact on their financial and tax planning. Even though the rumor of greater taxation of capital gains had been circulating for years, it was on April 16 that it came to fruition and the change in the inclusion rate from 50% to 66.7%. This is the announcement that has caused the most uncertainty. Overview based on your questions.
Should I sell my shares to pay less capital gains taxes before June 25 and then reinvest in the market?
Let’s first clarify one thing: the unrealized capital gain on your investments held in registered accounts (such as RRSPs, RESPs, TFSAs, etc.) is not affected by this change. Furthermore, it is not the tax rate that is increasing to 66.7%, but rather the inclusion rate.
A capital gain of $100,000 was previously taxed on a $50,000 portion, which will now increase to $66,700. The taxes payable will then be calculated based on your personal income. If you hold non-registered investments, you will benefit from an annual threshold over which the first $250,000 of capital gains will remain at the 50% inclusion rate. But if your investments are held by a holding company, the inclusion rate will immediately be calculated at two-thirds.
Triggering capital gains by liquidating your non-registered investments by June 25 could therefore be considered if you hold your investments in a business account and think you will need liquidity in the short or medium term. If you want to make changes to the composition of your portfolio, it would be appropriate to do so this spring.
On a personal level, you must understand that the amount of $250,000 is not the balance of your investment account, but rather the amount of the capital gain. In any case, if you do not need your investments to survive in the short term, selling securities to then buy them back in order to pay a little less tax seems to me to be a bad idea, since it increases your exposure to risks market volatility and still requires you to pay taxes immediately rather than being able to defer them.
I have a promise to purchase my duplex, held personally, which will generate a capital gain of $240,000 with official transaction planned for August. Considering that I pay taxes on my investment income, should I put pressure on my buyers to go to the notary before June 25, because I am afraid of exceeding $250,000?
The question is legitimate. We should see what capital gains are usually taxed in this portfolio, knowing that they can vary from one year to another depending on the amount invested, the turnover of the portfolio, the distributions of the funds used, the use of funds in corporate category or not.
In this case, the important thing is that the inclusion rate of 66.7% only applies to the gain exceeding the amount of $250,000, which still benefits from the old rate. If the same question applied to a business, I would indeed advise negotiating an early occupancy date with buyers.
Finally, be reassured: capital gains linked to the sale of real estate to which the principal residence exemption has been applied remain exempt from tax, regardless of the amount of the capital gains. At least, for now…
Should I contribute more to my RRSP this year, even if it means taking out an RRSP loan to increase my down payment on the purchase of my first home next year?
Among the measures that theoretically have a direct impact on the overall financial planning of citizens is the increase in the amount eligible for withdrawal from RRSPs under the home ownership plan, the RAP, which goes from 35,000 to 60,000 $ per person, with possible postponement of the start of mandatory repayment from 2 to 5 years after the year of withdrawal.
The objective is to facilitate access to property, but one of its consequences could be the increase of the gap separating two people with the financial capacity to become owners. Because access to property is not difficult because the amounts eligible for the RAP are not generous enough. In fact, the majority of taxpayers do not even contribute enough to their RRSP to prepare for their retirement: knowing this, is allowing them to withdraw a larger share of investments really a gift?
Combined with the possibility of extending the mortgage payment over 30 years for new properties (and first homes), this formula poses a danger for those who are already behind on investments. A theoretical recourse to a significant withdrawal with the increase in the RAP, combined with CELIAPP contributions, to purchase an overpriced residence, could mean that retirement would then depend on a single real estate asset rather than a more balanced portfolio . Many calculations were presented this week, I will not add more, but remember that your first real estate project benefits more than ever from being analyzed as part of integrated financial planning.
I am in the process of selling my company’s shares, should I change something?
If the sale of your business were to be signed this spring and your shares are eligible, you would potentially have to wait until after June 25, since the capital gains exemption will increase to $1,250,000 per taxpayer. A quick call to your tax professional should be on your agenda this week.
In addition to selling their business, there is no doubt that entrepreneurs will need to review their financial, tax and estate planning. With the reduction in eligible balances in the capital dividend account and the absence of the $250,000 threshold for capital gains in corporations, the taxes deferred at death are expected to become more important than expected for the estate.
In order not to discourage entrepreneurship with the changes to capital gains taxation, a new incentive for Canadian entrepreneurs will be put in place in January: it will reduce the inclusion rate to a third for eligible businesses. This measure does not concern consulting or personal care service businesses, or those in the financial, insurance, real estate, accommodation, catering, arts, entertainment or entertainment sectors. Recreation.
If I understand the political game behind the Trudeau government’s announcements, I do not support the argument that this budget taxes “the richest”. Financially well-off people will contribute more to financing public services, of course, but the truly rich are not those who have managed to buy an income property to finance their retirement: they are those who have the necessary means to escape to where It’s fiscally better.