Capital Gains Hikes: Tax Complexity Scale Increases

Evelyn Jacks

One of the topics of conversation in the May 22 CE Savvy Summit for tax and financial advisors will be the new complexity the capital gains inclusion rate increases will bring to the Income Tax Act.  Although the draft legislation to bring the current 50% rate up to 66 2/3% is still missing in action despite a looming June 25 date on the horizon, the changes will require a look back to the 1980’s to calculate gains properly and looking forward, potentially 6 different capital gains exemptions.

“Anyone contemplating a sale of a significant asset should definitely be working with a tax accountant and a lawyer,” says Evelyn Jacks, President of Knowledge Bureau and program director for this important continuing professional development day.  “Just consider the calculation for the application of capital losses to your capital gains, critical in minimizing the capital gains taxes.  Losses of the past can be carried forward to reduce capital gains subject to tax this year, so step 1 is to make sure you claimed any losses every year, even if you had no gains to offset them.” 

Step 2 however, is more involved.  Prior year losses will be grossed up or adjusted for the new higher capital gains inclusion rate before applying them.  “Depending on the history of your capital gains transactions, there may be several other adjustments for changes in the capital gains inclusion rates going back to the 80s and 90s,” says Mrs. Jacks.

The amount of capital gain that is included in income is called the "taxable capital gain" and this is determined by the capital gains inclusion rate, which has changed a number of times since the introduction of capital gains taxes in 1972.

History of Capital Gains Inclusion Rates:

1972 – 1987:  Inclusion rate at 50% (1/2)

1988:  The date that CNIL (Cumulative Net Investment Loss) reduces Capital Gains Deduction

1988 – 1989: Inclusion rate at 66.67% (2/3)

1990 – February 27, 2000: Inclusion rate at 75% (3/4)

February 28, 2000 to October 17, 2000: Inclusion rate at 66.67% (2/3)

October 18, 2000 to date: Inclusion rate at 50% (1/2)

June 25, 2024 forward (for individuals): Inclusion rate on first $250,000 at 50% (1/2),  Inclusion rate above that at 66.67% (2/3)

For corporations and trusts: Inclusion rate at 66.67% (2/3)

Because the capital gains inclusion rate changed during 2000, each taxpayer will have their own capital gains inclusion rate for the year. This rate may vary from 50% to 75% depending on when any capital gains or losses in 2000 were experienced. This same applies to 2024 based on the disposition of assets.