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Capital Gains – Inclusion Rate Change on the Horizon?

Posted by Derek de Gannes Posted on 07 Mar 2017

As we head toward another federal budget to be released on March 22, there is much speculation about a change in the capital gain inclusion rate from 50% to 66.67% or 75%.

We have prepared an outline examining the impact of a change in the inclusion rate and encourage you to consider certain tax planning strategies to lock in the current 50% inclusion rate.

Current Capital Gain Tax

As the rules are currently written, only 50% of a capital gain is subject to tax in Canada. For an Ontario resident, the combined Federal and Ontario tax rate applicable to a high rate taxpayer is 26.8% which compares favourably to salary at 53.5% and non-eligible dividends at 45.3%. History has shown us when the gap between the capital gain and dividend tax rate is this great that a change is in order to narrow the gap.

Capital Gains Tax CrosswordOne way for the federal government to narrow the gap would be to increase the capital gain inclusion rate from 50% to 66.67% or possibly 75%. The rate increase is likely to translate into a tax increase on the capital gain of one-third or one half.

What You Can Do

You can lock in the current 50% inclusion rate by taking action before the 2017 Federal Budget is delivered. If you are not selling capital property in the very near term you could effect a sale to a related person and crystallize the capital gain at the current 50% inclusion rate.

There are a number of strategies available to fit your circumstances. The strategies are tax neutral and will not cause unnecessary tax if the speculation about a capital gain rate change is false.

Next Step

Your next step is consult a CW Partners LLP advisor to review the impact on you and your business and determine what action should be taken to lock in the current 50% inclusion rate. Should you decide to proceed with one of our strategies, we will provide all implementation instructions to you and your legal counsel; in addition, we will prepare and file all tax elections for a fee to be discussed before any work begins.

Book an appointment with one of our advisors here (Toronto) or here (Markham).

The content provided within this site is for general information purposes only, and should not be used or construed as a substitute for consultation with qualified professional advisors.

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