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.
One 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.
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.