Capital Gains Tax Changes: What You Need to Know

Federal Government Proposes Inclusion Rate Increase

The federal government has proposed increasing the inclusion rate for capital gains on assets disposed of after 2023 from 50% to 66.67% for individuals with taxable income over $250,000.

Implications for Real Estate Investors

These changes may have significant implications for real estate investors. When selling real estate, capital gains tax is payable on the portion of the proceeds that exceeds the cost of the property, including any allowable deductions. The proposed increase in the inclusion rate will mean that a larger portion of capital gains will be subject to tax.

Calculating Capital Gains Taxes

To calculate your capital gains taxes, you will need to determine the following:

• The selling price of the property
• The cost of the property, including any improvements
• Any allowable deductions, such as depreciation
• The inclusion rate (50% or 66.67% after 2023)

Once you have determined these factors, you can calculate your capital gains taxes by multiplying the capital gain by the applicable inclusion rate and then applying the applicable tax rates.

Average Capital Gains Tax Rate

The average capital gains tax rate you pay will depend on your taxable income and the applicable tax brackets. For tax years 2021 to 2024, the federal capital gains tax rates are as follows:

• 15% for taxable income up to $50,197
• 25% for taxable income over $50,197

When is Capital Gains Tax Payable?

Capital gains tax is generally payable when you sell a property. However, there are some exceptions to this rule, such as when you sell your principal residence.

Conclusion

The proposed changes to capital gains taxes may have significant implications for real estate investors. It is important to understand these changes and how they will affect your tax liability. If you are planning to sell real estate, it is advisable to consult with a tax advisor to discuss your specific situation.