How Canada’s New Capital Gains Rate Affects Manitobans

new capital gains tax rate

As of June 25, 2024, Canada has implemented a new capital gains inclusion rate. This rate, often a topic of confusion, is designed to impact various property sales. Let's break it down:

  • You do not pay capital gains on your primary residence, so this new rate inclusion does not affect anyone buying or selling their own home.
    The changes affect those with cabins, more than one home, or large stock sales.
  • When you sell a cabin or stock and make a profit, you're required to pay taxes on that gain. But here's the thing-you don't pay taxes on the entire amount, just 50% of it. So, if you bought a cabin for $100,000 and sold it for $300,000, that's a $200,000 gain. Half of that, which is $100,000, is considered income. This amount is added to your regular income, and you pay taxes on it.

The new capital gains inclusion rate would change to 66% instead of 50%, but only on capital gains over $250,000. In the above example, the amount paid would remain the same.

If someone bought a cabin or stock 20 years ago for $200,000 and sold it for $600,000, that would be a capital gain of $400,000. You wouldn't pay tax on 66% of that $400,000 but only anything above $250,000. It would be:

  • 50% of $250,000 ($125,000)
  • 66% of the remaining $150,000 ($99,000)

In this case, under the old system, you would add $200,000 to your income for the year, and under the new system, you would add $224,000. That would be an additional $24,000 in income from the old inclusion rate to the new one.

Although no one wants to pay more taxes, this will not affect most of the population. The people who will be affected are those who have had a massive stock gain or bought a cabin or second residence decades ago and have had it appreciated significantly over the years.

I was asked if this new rate would affect cabin sales. The only way it would have affected cabin sales is if someone was already on the fence about selling and wanted to avoid the new rate. Not only that, but their capital gains would need to be significantly over $250,000 for it to impact their income and have a serious financial effect.