The Key Changes to the Capital Gains Tax in 2024 – How does that Impact You?
In 2024, changes to Canada’s capital gains tax introduced new considerations for investors, property owners, and high-income individuals. Capital gains tax is applied when individuals sell an asset—such as real estate, stocks, or bonds—for more than they originally paid. The difference between the selling price and the purchase price is considered the “capital gain.”
Increase in Inclusion Rate:
Previously, 50% of the capital gain was taxable. In 2024, the inclusion rate has been raised to 75%. This means that three-quarters of your capital gain is now subject to taxation at your marginal tax rate. For example, if you sold an asset for a $100,000 profit, $75,000 would now be taxable instead of $50,000 under the old rules.
Example:
Let’s say Sarah purchased a rental property for $400,000 and sold it in 2024 for $600,000. Her total gain is $200,000. Under the new inclusion rate, $150,000 of that gain (75%) will be taxable. If Sarah’s marginal tax rate is 40%, she would owe $60,000 in capital gains tax ($150,000 × 40%).
Changes to Principal Residence Exemption:
Previously, homeowners who sold their primary residence did not have to pay capital gains tax. Starting in 2024, the principal residence exemption limits have been introduced for high-value properties. The new rules apply a cap on the tax-free portion of the sale for homes over a certain value, typically those valued above $1.5 million. This change aims to curb speculation in the real estate market, particularly in areas where housing prices have skyrocketed.
Example:
Mark sold his primary residence for $2 million in 2024. Under the new rules, only a portion of the sale is exempt from tax. If the cap is set at $1.5 million, $500,000 would be subject to capital gains tax. Assuming a 75% inclusion rate, $375,000 would be taxable. If Mark’s tax rate is 35%, he would owe $131,250 in capital gains tax.
New Reporting Requirements for Real Estate Transactions:
In 2024, stricter reporting requirements were implemented for individuals selling real estate. Sellers must now provide detailed information about the property’s acquisition cost, length of ownership, and improvements made. The Canada Revenue Agency (CRA) aims to close loopholes and ensure compliance, particularly with individuals trying to claim the principal residence exemption on multiple properties.
Tax Treatment of Cryptocurrency and NFTs:
With the growing popularity of digital assets, the CRA now specifically addresses capital gains on cryptocurrencies and NFTs (non-fungible tokens). These digital assets are treated similarly to other investments, meaning any profit made upon sale is subject to capital gains tax. The new rules provide clarity, ensuring that gains on digital assets are reported accurately.
Example:
John bought $20,000 worth of Bitcoin in 2020 and sold it for $80,000 in 2024. His total gain is $60,000. With the new 75% inclusion rate, $45,000 of that gain will be taxable. If John is in the 30% tax bracket, he would owe $13,500 in capital gains tax ($45,000 × 30%).
The 2024 changes to Canada’s capital gains tax have significant implications for investors, homeowners, and digital asset traders. The increased inclusion rate means higher tax liabilities on profits, while the new limits on the principal residence exemption aim to tackle real estate speculation. These changes are part of the government’s broader strategy to ensure fairness in the tax system and curb speculation, particularly in the housing market. Investors should plan accordingly and discuss with their accountants to see how to manage their investments better.
