*UPDATED CAPITAL GAINS TAX INFORMATION FOR THE 2024 YEAR*
Starting June 25, 2024, significant changes to the capital gains tax rules will come into effect in Vancouver, as part of the federal government’s Budget 2024. Here are the key points you should be aware of:
- Increased Inclusion Rate: For individuals, the inclusion rate for capital gains exceeding $250,000 in a year will increase from 50% to 66.67% (two-thirds). The first $250,000 in capital gains will still be taxed at the existing 50% inclusion rate (Global News) (Ratehub.ca).
- Corporations and Trusts: The inclusion rate for all capital gains realized by corporations and trusts will uniformly increase to 66.67%, with no threshold (Global News) (McMillan LLP).
- Impact on Investors: This change primarily targets high-income individuals and entities with significant capital gains. Most average investors, who hold their investments in tax-advantaged accounts like TFSAs, RRSPs, and registered pension plans, will not be affected by these changes (Global News) (Ratehub.ca).
- Transitional Rules: Taxpayers with taxation years straddling the implementation date will need to track their capital gains and losses separately for periods before and after June 25, 2024. Capital losses realized before this date can be applied against gains realized after (McMillan LLP).
- Revenue Projections: The federal government expects these changes to generate approximately $19.4 billion over the next five years, with a significant portion of the revenue anticipated in the first year due to the acceleration of capital gains realization before the new rules take effect (McMillan LLP).
These changes aim to make the tax system more equitable by targeting wealthier individuals and businesses with higher capital gains. However, it is expected to impact a small percentage of the population significantly (Global News)(McMillan LLP). For more detailed planning and to understand how these changes might affect your specific situation, consulting with a tax advisor would be prudent.
Vancouver Real Estate & Capital Gains
In Vancouver Real Estate – many owners have made plenty of money on their homes or Real Estate investments. What do you owe the Government?
“In simple terms, a capital gain is an increase in the value of an investment (such as stocks or shares in a mutual fund or exchange traded fund) or real estate holding from the original purchase price. If the value of the asset increases, you have a capital gain and you need to pay tax on it. That might sound bad — but trust us, making money on your investments is never a bad thing.
Capital gains can be “realized” or “unrealized.” A realized capital gain occurs when you sell the investment or real estate for more than you purchased it for. An unrealized capital gain occurs when your investments increase in value, but you haven’t sold them. The good news is you only pay tax on realized capital gains. In other words, until you “lock in the gain” by selling the investment, it’s only an increase on paper.” WealthSimple
What is Capital Gains Tax in Real Estate and how does it work?
Simply put, when you sell an investment home in B.C you are taxed on 50% of the net profit. This is very different from business income as you get taxed on 100% of that income.
Let’s say you sell an investment property in Vancouver and you make $100,000 you will be taxed on $50,000 of that. If you are in the 33% tax bracket you will be taxed $16,500 approximately. Definitely consult your accountant however as everyone has a different situation.
Capital Gains Exemptions
Simply put, if you have lived in the property that has appreciated and it is deemed your primary investment you should be exempt to pay capital gains in most cases. However, if you buy a home, see capital gains and sell once every 12 months – be careful! The government may deem this your business and you could be taxed. Don’t try and take short cuts, this could cause serious legal ramifications in the long run!
The unwritten rule is one year of living in the home. However, it is all about intent. If you moved in, had a baby and the 1 bedroom was not enough you can in some cases sell and be exempt. However, you need to confirm this with a lawyer or Real Estate Accountant before making that decision.
When a home turns into an investment
So you have lived in your Vancouver home for a year and decide to rent it out – What happens? If you have seen an appreciation on the value since you have bought and lived in the home you need to appraise it when you move out.
After you move out and rent it you are now on the hook for any capital gain that happens after you move out.
Example:
- Bought a Vancouver condo in January 1, 2015 (probably in multiple offers…!) for $500,000
- You rent the home out as of January 1, 2016: You have a Realtor & appraiser determine the value of your home is $625,000
- You sell your home in January 2017, 2016 for $700,000
- Your taxable capital gains will be half of the $75,000 you have made since you turned it into a rental property or investment.
- Taxable capital gains = $37,500 | Say you are taxed at a rate of 33% your capital gains tax should be around $12,000.
This is a very general look at how it could work and everyone has a different scenario. *Please consult your accountant and/or Real Estate Lawyer.
As a Vancouver Realtor for over a decade now I have many contacts who can helps us determine your situation. With a specific Real Estate Accountant, Lawyer and more we can make sure you know very well what your situation may be.
Thinking of selling? Find out what your home or investment is with a free home evaluation!
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For much more information on Capital Gains tax visit the Canadian Revenue Agency….
For more information on real estate market in Vancouver, current trends, buying a home or selling a home, contact Leo Wilk – Your Top Vancouver Realtor.
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