Understanding the Impact of New Capital Gains Tax Rules on Kelowna Real Estate

The federal government has announced significant changes to the capital gains inclusion rate, which will affect individuals, trusts, and corporations starting June 25, 2024. These changes have important implications for those involved in the buying and selling of real estate in Kelowna, BC.

Key Changes to the Capital Gains Inclusion Rate

1. Increased Inclusion Rate:
   • The capital gains inclusion rate will increase from 50% to 66.7% for gains realized on or after June 25, 2024.
   • This means a larger portion of capital gains will be subject to income tax.
2. Relief for Individuals:
   • Capital gains up to $250,000 per year will remain subject to the 50% inclusion rate for individuals.
   • This relief also applies to gains realized indirectly through a trust or partnership.
3. Exceptions for Estates and Disability Trusts:
   • Graduated rate estates and qualified disability trusts will continue to benefit from the 50% inclusion rate on up to $250,000 in capital gains each year.

Impact on Kelowna Real Estate Transactions

These changes are particularly relevant for Kelowna residents involved in real estate transactions. Here’s how they might affect you:

1. Homeowners and Investors:
   • If you sell a property and realize significant capital gains, a larger portion of these gains will now be taxed at a higher rate.
   • For instance, individuals at the top marginal tax rate could see an 8% – 9% increase in taxes on capital gains exceeding $250,000.
2. Real Estate Corporations and Trusts:
   • Corporations and trusts (excluding certain estates and disability trusts) will face the higher inclusion rate immediately on all gains.
   • This change could impact financial planning and the timing of property sales.
3. Market Dynamics:
   • The new rules may influence the timing of property sales as owners might rush to complete transactions before the new rates take effect.
   • This could temporarily increase market activity and impact property prices.
4. Tax Planning Considerations:
   • Those holding assets with significant accrued gains should consult with a tax advisor to understand the full implications.
   • Factors such as alternative minimum tax, residential property flipping rules, and the increase in the lifetime capital gains exemption for certain properties need to be considered.

What Should You Do?

Given the complexity and potential impact of these changes, it’s crucial to seek professional advice.

Here are some steps you should take:

1. Consult Your Tax Advisor:
   • Analyze your options and understand the tax consequences of selling assets before or after the inclusion rate increase.
   • Consider both tax and non-tax factors in your decision-making process.
2. Reassess Estate Plans:
   • If you have an existing estate plan, ensure it remains effective under the new rules.
3. Stay Informed:
   • Keep up-to-date with further details and technical amendments to the legislation expected this month, in July 2024.

Action Required Before June 25, 2024

To mitigate the impact of the higher inclusion rate, any actions to realize gains were to be completed before June 25, 2024. This was a brief window to make informed decisions and possibly benefit from the current lower inclusion rate.

For more detailed information and personalized advice, reach out to your local tax advisor or contact Hilbert&Crick for assistance or a referral!

Disclaimer: The information provided here is general and based on current proposals. It should not be construed as specific tax advice. Always consult with a professional to address your unique circumstances.