Capital Gains Tax Increase Canada

Capital Gains Tax Changes and Their Impact on Canadian Small Businesses

Background

In Budget 2024, the Canadian government introduced significant changes to the capital gains tax (CGT) regime. Effective June 25, 2024, these changes will have a major impact on individuals and businesses with capital gains exceeding $250,000 in a year.

Key Changes

The key changes to the CGT regime include:

• Increasing the capital gains inclusion rate from 50% to 66.67% for all capital gains.
• Introducing a new 33.33% capital gains deduction for corporations.

Tax Implications for Canadian Small Businesses

The CGT changes will have a significant impact on Canadian small businesses. For businesses with capital gains above $250,000, the effective tax rate on capital gains will increase from 25% to 35%. This could deter investment, growth, and job creation within the small business sector.

Concerns Raised by Entrepreneurs

Some Canadian entrepreneurs have expressed concerns about the negative impact of the CGT changes. They argue that the increased tax burden will discourage risk-taking and innovation, which are essential for small businesses to thrive. Additionally, they fear that the changes will make it more difficult for small businesses to compete with larger corporations, which may have access to more tax-planning options.

Implications for Tax Planning

The CGT changes have created a need for businesses to reassess their tax planning strategies. It may now be more beneficial to hold onto capital assets for a longer period or to consider alternative investment options. Tax advisors can assist businesses in developing tailored strategies to minimize the impact of the CGT changes.

Conclusion

The capital gains tax changes introduced in Budget 2024 will have a significant impact on Canadian small businesses. Businesses should carefully consider the implications of these changes and consult with tax advisors to develop appropriate tax planning strategies.