Capital Gains Tax Changes: What Homeowners Need to Know

Federal Government Introduces Changes to Second Property Sales and Transfers

In Budget 2024, the federal government announced significant changes to capital gains taxation aimed at making Canada's tax system fairer. These changes will impact homeowners who sell or transfer second properties, such as cottages, rental units, or investment properties.

Key Proposals

The proposed changes include:

• Taxing all capital gains earned by corporations and trusts at the two-thirds rate
• Boosting the lifetime capital gains exemption for business owners to $125 million from a little more than $1 million

If adopted, these changes would take effect in 2024.

Government's Rationale

The government's stated goal is to ensure that taxpayers who earn significant capital gains from the sale of properties are contributing fairly to the tax system. It believes that the current rules allow some individuals to avoid paying their fair share of taxes by using corporations or trusts to shelter their gains.

Impact on Homeowners

The changes will likely have a significant impact on homeowners who sell or transfer second properties. For example, if a homeowner sells a cottage for $1 million and has a capital gain of $500,000, they could face a tax bill of approximately $166,666 under the proposed changes. Under the current rules, they would pay no tax on the first $250,000 of their gain and only 50% tax on the remaining $250,000, resulting in a tax bill of approximately $62,500.

Next Steps

The proposed changes are still under discussion and are subject to parliamentary approval. Homeowners who may be affected by these changes should monitor the progress of the legislation closely and consult with a tax advisor to understand the potential impact on their situation.