Capital Gains Inclusion Rate Changes

The 2024 Federal Budget has introduced significant changes to the taxation of capital gains. The new legislation increases the capital gains inclusion rate from 50% to two-thirds (66.67%) of the actual gain, effective for capital gains realized on or after June 25, 2024. This change impacts all taxpayers, including corporations and trusts, with specific provisions for individuals. Below is a detailed breakdown of the changes:

Key Provisions:

1. General Inclusion Rate:
   • All taxpayers, other than individuals, must include two-thirds of their capital gains in their taxable income starting June 25, 2024.
   • This measure applies to corporations and trusts uniformly.
2. Individual Exemptions:
   • Individuals can continue to benefit from the 50% inclusion rate but only on the first $250,000 of net capital gains realized annually. This calculation accounts for:
     • Gains offset by capital losses.
     • Lifetime capital gains exemption.
     • Proposed employee ownership trust exemption.
     • Canadian entrepreneurs’ incentive.
   • Any capital gains exceeding the $250,000 threshold will be subject to the two-thirds inclusion rate.
3. Implications for Investors:
   • The higher inclusion rate increases the tax burden on capital gains for corporations, trusts, and high-net-worth individuals with gains exceeding the $250,000 annual threshold.
   • Strategic tax planning will become critical for taxpayers aiming to minimize the impact of this change.
4. Economic Impact:
   • The increased inclusion rate may influence investment decisions, potentially discouraging high-value capital asset sales.
   • Small business owners and individual investors will need to carefully navigate these changes to maximize their tax benefits.

CMHC Mortgage Rule Updates

In an effort to address housing affordability and accessibility, the Canada Mortgage and Housing Corporation (CMHC) has revised several key mortgage eligibility rules. These changes aim to reflect the realities of the current housing market and provide additional support to homebuyers. The updated rules are as follows:

Key Changes:

1. Increase in Insured Mortgage Price Cap:
   • The price cap for insured mortgages has been raised from $1 million to $1.5 million.
   • This change aligns with escalating housing prices and enables more Canadians to qualify for insured mortgages with a downpayment of less than 20%.
2. Expanded Eligibility for 30-Year Amortizations:
   • The availability of 30-year mortgage amortizations has been expanded to:
     • All first-time homebuyers.
     • Buyers of new builds.
   • This measure aims to reduce monthly mortgage payments, thereby improving affordability.

Implications for Homebuyers:

1. Increased Accessibility:
   • Raising the price cap makes higher-value properties accessible to middle-income Canadians, particularly in markets where housing prices have outpaced income growth.
2. Lower Monthly Payments:
   • Expanding eligibility for 30-year amortizations reduces the financial strain of monthly mortgage payments, particularly for first-time buyers and those purchasing new builds.
3. Market Stimulus:
   • These changes may encourage more activity in the housing market, particularly in the new-build sector.

Economic and Social Impact:

1. Support for First-Time Buyers:
   • First-time homebuyers, often priced out of competitive markets, now have greater opportunities to secure housing.
2. Addressing Housing Shortages:
   • Encouraging the purchase of new builds could stimulate construction activity, addressing housing supply shortages.
3. Potential Risks:
   • The higher insured mortgage cap may contribute to rising housing prices if demand outpaces supply.

Conclusion

The 2024 Federal Budget’s changes to capital gains inclusion rates and CMHC mortgage rules represent significant policy shifts aimed at increasing government revenue and improving housing accessibility. While the capital gains tax changes impose a higher burden on certain taxpayers, the revised CMHC rules offer much-needed relief to homebuyers facing affordability challenges. Taxpayers and prospective homeowners must carefully evaluate these changes and seek professional advice to optimize their financial planning and investment strategies.