The federal government has announced that the 2017 Budget will be tabled in the House of Commons on Wednesday, March 22, 2017.
In advance of a new budget, there is always much speculation regarding tax changes that may be implemented. This year, there is talk about a potential increase in the capital gains inclusion rate, which would restrict the preferential tax treatment for gains on the disposition of capital property. Although such an increase has not yet been confirmed, it is important to understand how this may affect you, and plan accordingly.
Capital Gains Inclusion Rate
Currently, only 50% of capital gains are subject to income tax. For an individual at the top tax bracket in Ontario, the effective tax rate for capital gains would be 26.765%. This is significantly lower than the top tax rate for dividends (39.34% for eligible dividends and 45.30% for other than eligible dividends). However, an increase in the capital gains inclusion rate from 50% to 75%, as speculated, would raise the effective tax rate to 40.15%.
What This Means For You
If you are considering a significant capital asset sale, it may be advisable to structure the transaction to allow for greater flexibility, should the capital gains inclusion rate be increased as rumoured. Historically, any change to the inclusion rate has applied only to transactions after the budget date. There are strategies available that can lock in the current inclusion rate of 50%, dependent upon your specific circumstances. With less than two weeks until the budget announcement, the time to act is now.
Contact us today to discuss how you and your business may be affected by this potential change in legislation, and what can be done to minimize the impact.