How the capital gains tax changes could impact your tax bill with Jamie Golombek

Tax expert Jamie Golombek, Managing Director of Tax & Estate Planning at CIBC Private Wealth, joins us for an in-depth conversation on the new higher capital gains inclusion rate, and what this change could mean for Canadians and their future financial decisions—including individuals, investors, and businesses or corporations. If you might be affected by the change, you’ll want to listen to this episode! 

Here are three reasons why you should listen to this episode: 

1. Learn about the changes to the capital gains tax inclusion rate that took effect on June 25th, 2024.
2. Find out how the changes affect people with vacation homes/cottages and rental properties, investors, and corporations and businesses.
3. Discover the impact of tax planning with long-term strategies and advice.

Resources 

• Visit CIBC for more smart advice
• Read Jamie Golombek’s column “Tax Expert” in the National Post

Episode highlights 

[02:40] Current rules vs. proposed changes 

• Jamie says it’s a big change, but only affects a small number of people each year. The change affects people who realize capital gains outside of a registered plan that total more than $250,000 in a calendar year.
• Jamie says the change will also affect individuals who sell a vacation property, income or rental property. Or, if the property isn’t transferred to a spouse or partner via spousal rollover, the estate may be liable for taxes.

[04:40] “If we really want to break it down, what does this really mean for those who are affected? For individuals, it’s only gains over $250,000, and effectively your tax rate is going up by nine percentage points.” 

[05:51] Who the changes will affect

[06:30] Individuals with a second home/cottage/vacation property 

• Jamie notes that if you will have higher capital gains from selling your vacation property, you can use the principal residence exemption.
• If a vacation property is jointly owned by two spouses or partners, capital gains can also be split 50-50. Each individual can take advantage of lower 50% inclusion rate on first $250,000 in capital gains. This also applies to jointly owned rental properties.
• Jamie suggests tracking capital expenditures, like a major renovation, that add to the property’s value. These can be added to your adjusted cost base for tax purposes. When you sell, the capital gain will be lower because cost will be higher.

[09:10] Cottage owners 

• Jamie notes one interesting opportunity for some clients is permanent life insurance if there’s no cash in the family to pay capital gains taxes if you die and someone inherits your cottage. The amount of insurance you need only needs to cover the taxes. This can be done affordably if you’re in relatively good health and relatively young.

[12:11] Investors

• Jamie predicts for 2024, the new term will be “capital gains selling.”
• Jamie advises to look at your broader portfolio allocation and holdings, and speak to your advisor to see if there are opportunities to crystallize a gain and rebalance portfolio. By end of the year, as long as the capital gains are less than $250,000, you will pay a preferred rate on the capital gains tax.

[14:56] Corporations or businesses 

• Jamie says that many professionals use corporations because of the substantial tax deferral. But with the recent change, there’s have a problem: if you earn capital gains, you don’t get the $250,000 break of the lower threshold in the corporation. This means you would be better off if you earned the gains personally vs. in a corporation.
• For new business owners, the real concern is if you’re building up an investment portfolio internally, you’re really disadvantaged.

[17:37] “I think that you really need to look at the value of deferral. If you’re not leaving at least $100,000 or more a year in the corporation, and you’re deferring tax on that, you have to question, is it worth paying that extra tax ultimately on the capital gain rather than having that investment done personally?” 

[17:56] Will the capital gains inclusion rate ever go back down? 

• Jamie says it will depend on what future governments do. A new government could get elected and reduce the inclusion rate.

[19:18] “Ultimately it really is a political issue, and I think it will depend on who comes in, and the budget, and ultimately spending and how they can manage the deficit and also the long-term debt.” 

[19:46] Tax planning tips

• Jamie advises sitting down with a financial advisor, tax advisor, or an accountant to make sure you’re taking advantage of registered plans