Canada Significantly Increased Capital Gains Tax

The federal government of Canada announced an increase in the federal capital gains tax amounts over 250,000 Canadian dollars from the already significant 50 percent to 67 percent. Although leaders of the change explained to the plebs how they hit the wealthiest 0.13 per cent of Canadians with an average annual income of 1.4 million and 12% of Canadian corporations, the change has sparked a backlash as a new exodus of professionals such as doctors and tech industry investors is expected.

Capital Gains Tax is a tax that Canadian citizens pay on profits from the sale of capital assets such as real estate properties, shares in a business when they retire or the sale of a business, etc. The exception to the payment of this tax is only in the case of the sale of one's residence, which can only be one in the entire territory of Canada. From June 25, 2024, when the new regulations came into force, the capital tax will be paid at 67% for profits over 250,000 dollars, and for profits that are lower than 250,000 dollars will be paid at the old rate of 50%.

 When it comes to capital gains from the sale of non-residential real estate, Canadians have resorted to some of these solutions even before this change:

• Under the "six-year exemption rule" they maintained the property as their primary residence for a maximum of six years even if it was unoccupied and used for rental and income generation.
• They gave away real estate (there is no tax on the gift) or transferred it as an inheritance (the heir pays tax).

They transferred earnings to the pension fund as a temporary solution (who has room for payment in the pension fund and deferred tax payments for the moment of using the pension money when the beneficiaries are usually in a lower tax bracket)

It is recommended to consult experts for more details and for individual cases, regarding the possibility to postpone the payment of tax on capital gains by using the "spreading out" method. Under certain circumstances, it is possible to "spread" the capital sale profit over five years. Since Canada has a progressive tax system where citizens are taxed more for every extra dollar they earn, spreading the profits over five years can save a lot on capital gains tax. For example, if an investment is sold with a profit of 250 thousand dollars, that profit is "spread" over five years, the marginal tax on 50 thousand per year will be more than 2 times the amount than if you paid it all in one year. A legitimate condition for this is that the payment must be made over five years. The transfer of real estate to family members, such as a family business, can be spread over ten years.

Small businesses and professionals who do not belong to the "extremely rich class" will suffer the most from this change, because they all have neither health benefits nor state pensions. Their career-long investment is riskier, and they put money into their small business or shares of a larger business, whether it's a dentist's office with all the space and chairs, a partnership in an engineering firm, or just an account with the money of a doctor who provided his services to a hospital.  Part of their retirement is cashing out that surgery, shares or withdrawing money from the company's account, and considering the state system that has devised that they have rights to almost 70 percent of that money, the question arises as to how much sense it makes for young people of that profile to plan their lives in a country with such financial disadvantages. Due to these changes and the increase in the cost of living in Canada, a new outflow of personnel to the United States and other countries is expected, as well as a deepening of the health personnel deficiency that we are already facing.