After months of discussion about the changes to the capital gains inclusion rate from 1/2 to 2/3, the Department of Finance issued a news release on January 31 to indicate that the date of implementation of such changes would be deferred from June 25, 2024, to January 1, 2026.
The news release states that the announced proposals would keep the $250,000 annual threshold that will allow individuals to have capital gains under this threshold taxed at the 1/2 inclusion rate. (See Government confirms changes to capital gains inclusion rate for details of the initial proposals.)
The government also stated that two items that accompanied the capital gains increase in the 2024 budget announcement would be maintained at the original dates:
- The proposed increase in the Lifetime Capital Gains Exemption to $1.25 million (from the current amount of $1,016,836) on the sale of small business shares and farming and fishing property. This increase will be effective June 25, 2024.
- The proposed new Canadian Entrepreneurs' Incentive, which is to take effect starting in the 2025 tax year. (See The Canadian Entrepreneurs' Incentive: A new tax incentive when selling your business.)
The capital gains changes have been a particular source of vexation to taxpayers and their advisors. The mid-year change in inclusion rates, the fact that the proposals did not become law in 2024, and the fact that the Canada Revenue Agency (CRA) had stated their intention to issue forms for 2024 tax returns that reflected the proposals prior to the changes becoming law have all contributed to this concern.
The CRA announced later on January 31 that they will issue forms that have been reverted to the 1/2 inclusion rate in the coming weeks.
In addition, the CRA will grant relief in respect of late-filing penalties and arrears interest until June 2, 2025, for impacted T1 Individual filers and until May 1, 2025, for impacted T3 Trust filers to provide additional time for taxpayers reporting capital dispositions to meet their tax filing obligations.
Practically speaking, the deferral means at least two things:
- There will be delays in filing 2024 tax returns while we wait for the CRA to issue forms reflecting this announcement.
- The original and the now deferred proposed changes to the inclusion rate have not been passed into law, and may never be passed, particularly if there is a change in government in 2025.
Your BDO advisor can assist you in understanding what these changes mean to you.
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