The government is committed to tax fairness for Canadians. Today, Canadians pay tax on the income from their job. But currently, they only pay taxes on 50 per cent of capital gains, which is the profit generally made when an asset, such as stocks or a rental property, is sold.
Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, tabled a Notice of Ways and Means Motion in Parliament to deliver greater tax fairness and implement the changes in capital gains taxation announced in Budget 2024.
As of June 25, 2024, the capital gains inclusion rate—the amount of capital gains that are taxable—will increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. This will make Canada’s tax system fairer and raise $19.4 billion over five years to pay for investments to build nearly 4 million new homes, to make life cost less, and to grow the economy—for every generation, particularly Millennials and Gen Z.
To ensure most middle class Canadians and entrepreneurs do not pay more tax, the government is maintaining existing capital gains exemptions and creating new exemptions, including:
- Maintaining the Principal Residence Exemption, to ensure Canadians do not pay capital gains taxes when selling their home. Any amount you make when you sell your home will remain tax-free.
- A new $250,000 Annual Threshold for Canadians, effective June 25, 2024, to ensure individuals earning modest capital gains continue to benefit from the current one-half inclusion rate. Capital gains, including on the sale of a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax.
- Increasing the Lifetime Capital Gains Exemption to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. With this increase, Canadians with eligible capital gains below $2.25 million will pay less tax and be better off.
- A new Canadian Entrepreneurs’ Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs will pay less tax and be better off on capital gains of up to $6.25 million.
The government is increasing the capital gains inclusion rate—with the above exemptions—to make Canada’s tax system fairer. Currently, wealthy individuals can face a lower marginal tax rate on their capital gains than what a middle class worker would face on their paycheque. For instance, a nurse in Ontario earning $70,000 would face a combined federal-provincial marginal tax rate of 29.7 per cent. In comparison, a wealthy individual in Ontario with $1 million of capital gains income would face a marginal tax rate of 26.8 per cent.
Through Budget 2024, the federal government is building a fairer Canada, where every generation can reach their full potential. We are making Canada’s tax system fairer by asking the very wealthiest to pay their fair share—so that we can make investments in prosperity for every generation.
Quote
“Today it is possible for a carpenter or a nurse to pay tax at a higher marginal rate than a multi-millionaire. That isn’t fair. That is why our government is raising the inclusion rate on annual capital gains above $250,000 for individuals. This new revenue will help make life cost less for millions of Canadians, particularly Millennials and Gen Z. It will help fund our efforts to turbocharge the building of 4 million more homes. It will support investments in growth and productivity that will pay dividends for years to come.”
The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance
Quick Facts
- In Budget 2024, the government is delivering fairness for every generation with a housing plan that includes nearly 4 million new homes; transformative expansions to Canada’s social safety net to make life cost less and ensure Canadians get the care they need; and investments in innovation and productivity to create good jobs and economic growth. The government’s plan for tax fairness makes these investments in younger generations possible by increasing capital gains taxes on 0.13 per cent of Canadians, in any given year, to generate $19.4 billion in new revenue over five years.
- Today’s Notice of Ways and Means Motion, which contains the legislative details of the capital gains tax changes, will be followed by the release of updated draft legislation this July. In conjunction with the release of updated draft legislation, the government will also release implementation details on the Canadian Entrepreneurs’ Incentive to encourage founders in the technology sector, and others, to create and grow capital-intensive and high-growth companies, as well as clarifications beyond the scope of capital gains taxation to ensure Canada’s mining exploration companies, which are essential to building our net-zero economy, can continue to thrive.
- Increasing the inclusion rate on capital gains is also expected to generate significant new revenue for provincial and territorial governments, equivalent to up to 60 per cent of the new federal revenue ($11.64 billion over five years). For provinces and territories, this new revenue can be used to lift up every generation by making transformative investments in housing, health care, education, child care, infrastructure, and more.
- Canadians will continue to benefit from tax-free savings accounts and exemptions for registered pension plans, which are not subject to capital gains taxation. These include:
- Income, including capital gains, earned in a tax-sheltered savings account, such as an RRSP, RRIF, TFSA, FHSA, or RESP.
- Pension income or the capital gains earned by the registered pension plans you or your spouse are a member of including your workplace pension plan, and the CPP or QPP.
- Canadians with an eligible business investment loss can continue to deduct a proportion of those losses (referred to as an allowable business investment loss) from their income. The increased inclusion rate means two-thirds of eligible business investment losses on or after June 25, 2024 can be deducted against income, instead of the current one-half, which will encourage risk-taking and entrepreneurship.
- Canada has the lowest Marginal Effective Tax Rate (METR) in the G7, and below the OECD average.
- METR is an estimate of the level of taxation on a new business investment, accounting for federal, provincial, and territorial taxation, as well as investment tax credits, and capital cost allowances.
- Canada’s attractive METR will not be impacted by increasing the fairness of capital gains taxation.
- Canada’s METR will continue to support Canada’s attractiveness as an investment destination.
- The idea of taxing capital gains in Canada first got traction with the government of Prime Minister John Diefenbaker and the Royal Commission on taxation, chaired by Kenneth Carter.
- From 1972 to 1987, the capital gains inclusion rate was one-half (50 per cent).
- In 1988, the inclusion rate was raised to two-thirds (66.67 per cent).
- In 1990, the inclusion rate was further raised to three-quarters (75 per cent).
- From February 28, 2000, to October 17, 2000, the inclusion rate was two-thirds.
- Since October 18, 2000, the inclusion rate has been one-half.
Related Products
- Notice of Ways and Means Motion
- Technical Backgrounder: Capital Gains Inclusion Rate
- Annex: Fair and Predictable Capital Gains Taxation