The federal government of Canada has introduced significant changes to the capital gains tax rules, which will impact residents of British Columbia. The effective date was delayed to from June 25th 2024, to January 2026.

The most notable change is the increase in the capital gains inclusion rate. Previously, only 50% of capital gains were taxable. Under the new rules, this rate will increase to 66.67% for capital gains exceeding $250,000 per year for individuals, and for all capital gains for corporations and most types of trusts.

For example, if an individual realizes a capital gain of $300,000 in a year, the first $250,000 will be taxed at the old rate of 50%, while the remaining $50,000 will be taxed at the new rate of 66.67%.

Exemptions and Special Considerations:

Despite the increase in the inclusion rate, several exemptions and special considerations remain in place to protect certain taxpayers:

Principal Residence Exemption: The sale of a principal residence remains exempt from capital gains tax. This means that any profit made from selling your home will not be subject to the new inclusion rate.

Lifetime Capital Gains Exemption (LCGE): The LCGE for qualified small business shares and farm or fishing property remains available. This exemption allows individuals to exclude a certain amount of capital gains from taxation, which is particularly beneficial for entrepreneurs and farmers.

Canadian Entrepreneurs’ Incentive: This new incentive encourages investment in capital-intensive and high-growth sectors by providing additional tax relief for entrepreneurs.

Impact on Tax Planning

These changes will require individuals and businesses to reassess their tax planning strategies. Here are a few considerations:

Timing of Asset Sales: Individuals and businesses may need to reconsider the timing of asset sales to minimize the impact of the higher inclusion rate.

Utilizing Exemptions: Maximizing the use of available exemptions, such as the LCGE, can help reduce taxable capital gains.

Conclusion

The new capital gains tax rules in British Columbia represent a significant shift in the taxation landscape. Understanding these changes and planning accordingly can help taxpayers manage their financial obligations and take advantage of available exemptions.

If you have any specific questions about how these new rules might affect you, it’s advisable to consult with a tax professional or financial advisor. 

For additional information visit the Government of Canada dept. of Finance website.