Are you preparing for the 2024 tax filing? Here’s an important update. The Canadian government has deferred the new capital gain inclusion rate from June 24, 2024, to January 1, 2026. You need not calculate the taxable capital gain realized after June 24, 2024, at 66.67%. The capital gain taxation for the 2024 and 2025 tax years will go at the usual inclusion rate of 50%. This change will relieve taxpayers of capital dispositions in 2024 and 2025 as they will pay lower taxes under the old inclusion rate.
That doesn’t mean the inclusion rates won’t increase. The deferment of the new inclusion rate to 2026 will give taxpayers time to plan their capital gains. However, the rushed proposal in the middle of the tax year has made 2024 tax filing even more cumbersome.
What Does the Deferment Mean to Taxpayers?
Capital gain/loss is realized only when selling capital property such as stocks and bonds, mutual fund units, land, buildings, equipment, and antiques. Half of the gain is added to the taxable income in the year it is realized.
When the government proposed to increase the capital gain inclusion rate from 50% to 66.67% for individuals on gains above $250,000 and 66.67% on all capital gains realized by corporates, many rushed to sell their capital assets before June 24, 2024. This rush has created a capital gain for many Canadians for the 2024 tax year.
Many companies, individuals, and trusts divided the 2024 tax year into two: before and after June 24. They even prepared their tax applications and made changes to tax software.
If you have already filed your taxes or paid advance tax per the proposed change, you must redo the calculation as per the old method and refile your taxes.
The Canada Revenue Agency (CRA) understands the confusion these changes have caused. Therefore, it has granted relief on late filing penalties to those affected by the changes.
How to Implement the Capital Gain Tax Update in 2024 Tax Filing
The CRA has announced the following updates for the 2024 tax filing:
Individuals and Trusts
The CRA had previously issued new forms to reflect the June 25, 2024, implementation date for the capital gains tax inclusion rate increase. Some of these forms (ABIL, OtherDeduct, LossNetCap, LossLPP, T1212: Statement of Deferred Security Options Benefits, and TP21.4.39) have been put in the draft, and new tax forms will be issued to individuals to reflect the 50% inclusion rate.
For Trusts, the CRA will publish the 2024 T3/TP646 module once it updates its systems to reflect the 50% inclusion rate. To give taxpayers at least a month to fill out the new forms, it will not impose late-filing penalties and arrears interest on
- impacted individuals filing the T1 forms until June 2, 2025 from the original deadline of April 30, 2025.
- impacted trusts filing the T3 forms until May 1 2025 from the original deadline of March 31, 2025.
Corporations
The CRA has suggested corporations continue using the existing T2 forms and tax software with a 50% capital inclusion rate until further notice.
Corporations that have already implemented the changes and filed the application on the 66.67% inclusion rate will have to reverse the applications. The CRA will coordinate with them to make corrective reassessments.
Others
While the CRA has provided updates for individuals, trusts, and corporations, there is uncertainty around
- Form T4, Statement of Remuneration Paid
- Form T5, Statement of Investment Income
- Form T3, Statement of Trust Income Allocations and Designations
- Form T5013, Statement of Partnership Income.
The CRA’s September 23, 2024, notice of ways and means motion (NWMM) increased the withholding tax on non-residents’ purchases of taxable Canadian property from 25% to 35%. Given that the capital gain rule is deferred, clarity is sought around the rate that should apply.
Tax season is administratively tiring. This year, the CRA will provide an added layer of last-minute updates.
Contact Edelkoort Smethurst CPAs LLP in Burlington to Help You File Taxes as Per CRA’s Updated Guidelines
A professional tax consultant constantly follows up on the CRA’s updates and can help you comply with the tax rule changes while meeting the tax deadlines. At Edelkoort Smethurst CPAs LLP, our accountants and tax consultants can provide services such as tax filing and tax planning. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best tax planning expertise, contact us online or by telephone at 905-517-2297