The Federal Government has finally released draft legislation for the proposed changes to the capital gains inclusion rate. As you may recall, beginning June 25th, the government proposes to increase the amount of capital gain an individual includes in income from 50% to 66.67% for all capital gains over a $250K threshold in any given year. Corporations and trusts, except for qualified disability trusts, will not have the benefit of the $250K threshold, instead all capital gains will be included in income at a rate of 66.67%.

We have already begun the process of reviewing each account to determine who is affected and how best to mitigate any adverse tax consequence. There are three (3) factors we consider when deciding whether to trigger capital gains prior to June 25th: expected rate of return, a client’s time horizon, and the potential incremental capital gains tax. The greater the rate of return, the less it makes sense to trigger the capital gains early. We believe the returns of the market will be such that only those with a short time horizon will require immediate action.

Clients over the age of 80 with unrealized capital gains in their non-registered account over $250K will be affected, as will clients with corporations that are being drawn down annually. In each case, we will likely suggest triggering at least some of the unrealized gains in the account prior to the June 25th deadline. For those clients with corporations with large unrealized gains, we would like to set up a call with the accountant to discuss how much capital gain should be triggered.

It should be noted that clients owing a secondary property (ex. Cottage, rental property) will be affected by the new rules, but we don’t recommend taking any action prior to June 25th. There are a few strategies that can be done to mitigate the tax on any transfer to the next generation, but none require immediate action.

As with all government policies, it is possible a new conservative government reverses or modifies the legislation in the coming years, but without a crystal ball, we must assume the proposed policy change will continue well into the future.

We will be contacting each client who is adversely affected by these changes, and their respective accountants, to discuss what action should be taken, but please reach out to one our team members if you have any questions or concerns.

All the best,

Livingston Wealth Management Group