The perfect storm, it feels.
A strong equity market + an increase in the capital gains inclusion rate means more emphasis/planning to reduce our tax bill come April. Mind you, there is still a couple of months left in 2024, and if you are as tuned into the happenings in Ottawa like we are (our office is on the same floor as CPAC), a lot may happen with policy not to mention the equity markets.
As has always been the case, investments held personally in a non-registered account are subject to Canada’s capital gains inclusion rate. As you know, the CRA increased the inclusion rate from 50% to 66.67% starting June 25, 2024, for gains over $250K. Translation: starting June 25th, realized capitals gains that are less than $250K will be subject to the 50% inclusion rate, but every dollar of capital gain over $250K will be taxed at the new inclusion rate of 66.67%.
So, how do we soften the blow, especially when markets have been strong?
RRSPs. If you’ve got unused contribution room, start allocating money there. It’ll shrink your taxable income today, but it will create a tax liability down the road. If you’re over 72, try a spousal RRSP.
Donate stock, not cash. As you know, one of our founding tenents is to leave this planet better, and part of that is supporting our local community. One way to do this is to give appreciated securities directly to a charity. You skip the capital gains tax and get a nice deduction—two birds, one stone. Don’t know who to donate to this year? You can always set-up a donor advised fund with us and move forward your charitable giving. Contact us to learn more.
Don’t forget capital losses. In bull markets it’s hard to find losses in your portfolio. But, there’s always that one holding that doesn’t seem to be wanting to work. Use those losses to offset gains taxed at the new, higher rate.
Carry-forward losses are also your friend. If you’ve got losses sitting around from past years, think about applying them to gains subject to the new rate. Maximizes efficiency.
Bottom line: Plan ahead, consult with us and your tax advisors and make sure you get to keep more of what’s yours, and there’s always a way to do that.