Budget 2024 just dropped, and it includes higher taxes for wealthy Canadians, which will apply on or after June 25.
People around the country tuned in on Tuesday afternoon to watch the federal budget be tabled in the House of Commons. One of the most significant parts of it was the Liberals’ plan to improve tax fairness in Canada.
Budget 2024: Fairness for Every Generation — is a plan to build more homes, faster, make life cost less, and create more good jobs and economic growth shared by all. Because every generation deserve a fair chance at success.
— Chrystia Freeland (@cafreeland) April 16, 2024
Part of this means the wealthier you are, the more money you’ll have to pay. But what does “wealthy” really entail? Are you part of it?
Who is “wealthy”?
You don’t have to worry about the tax increase unless you’re making over $250,000 in capital gains.
“To make Canada’s system fairer, the inclusion rate — the portion of capital gains on which tax is paid — for capital gains for individuals with more than $250,000 in capital gains in a year will increase from one-half to two-thirds. Individuals will continue to only pay tax on 50% of any capital gains up to $250,000 per year,” the government said in a press release following the budget announcement.
This inclusion rate will also increase to two-thirds for all capital gains corporations and trusts realize.
Here’s an example of how a wealthy person might be impacted by the new tax rate:
“A high-income individual living in Ontario with a $400,000 salary also has a $300,000 gain from the sale of a second property. Under the current rules, they pay income tax on 50% — $150,000 — of that capital gain.
If they have the same gain in 2025, they will now pay tax on $158,333 of the gain (50% x $250,000 = $125,000) plus (2/3 x $50,000 = $33,333) = $158,333).
Because of their high income putting them in the highest marginal tax rate, the change to capital gains taxation will cost them $4,461 more in combined federal-provincial income tax.”
The sale of this hypothetical person’s principal residence will continue to be exempt from capital gains taxes.
As an individual, your personal income taxes on capital gains will not increase if you are not part of the moneyed 0.13% of Canada’s population with an average income of $1.42 million.
The budget notes that 28.5 million Canadians are “not expected to have any capital gains income” next year. Meanwhile, around 3 million others are expected to earn capital gains below the $250,000 annual threshold.
The Liberals also said that 12% of Canada’s corporations would be subject to this higher inclusion rate on their capital gains.
Read more about how Budget 2024 tackles tax fairness here.