Few if any individual taxpayers who are disposing of capital assets after June 24, 2024 and generating net capital gains above the annual $250,000 threshold will be able to avoid paying more on their tax bill because of the increase in the capital gains inclusion rates – and the impact will clearly be felt for trusts and corporations.

To lessen the blow, here are a few strategies to consider and discuss with your Investment Advisor and tax advisors, if applicable and relevant to your unique circumstances:    

• Realize capital gains under $250,000 threshold – If you have a portfolio of investments with large, accrued gains, consider disposing of your investments slowly over time to ensure you keep your capital gains realized below the $250,000 annual threshold.
• Charitable donations – There’s a tax incentive for those who donate certain publicly traded securities. In-kind donations of these securities made to a qualified donee are entitled to an inclusion rate of zero. As such, if you have appreciated securities, you may wish to consider donating these securities to a charity instead.
• Maximize the available room in your registered accounts – As income earned in registered accounts such as Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs) or Registered Education Savings Plans (RESPs) are not subject to tax, ensure you’ve maximized your contributions to these accounts, as appropriate.
• Consider gifts to family members – Consider gifting amounts to family members where they have not yet maximized their contribution amounts to their own registered accounts. For example, you may gift funds to your spouse or adult children and grandchildren and have them contribute those funds to their own TFSA. Normally, if you gift funds to your spouse, the attribution rules apply so that all the income earned, and capital gains realized on those funds, will be attributed back to you and taxed in your hands. However, there’s an exception for TFSAs and the attribution rules will not apply to income earned and capital gains generated within these accounts that’s derived from such contributions.
• Maximize future income splitting – If you have a spouse who earns less income than you or other family members with little to no income, you may want to consider implementing an income splitting strategy. Income splitting shifts income that would otherwise be taxed in your hands at a high marginal tax rate to your lower-income spouse, children, or other family members to take advantage of their lower marginal tax rates.
• Split the bill – If an asset is held jointly by two individuals (i.e., spouses) and the asset is sold, the $250,000 threshold applies to each individual. So, assuming attribution rules do not apply, when a jointly held asset is sold, each individual would recognize their proportionate gain or loss on the sale. For example, if a couple owns an asset jointly and equally, and they sell the property realizing a gain of $500,000, $250,000 will be taxed in one spouse’s return at 50%, and the other $250,000 will be taxed on the other spouse’s return at 50% (assuming there are no other capital gains realized in the year).

Caveat venditor  (seller beware) – don’t turn a gain into a loss

Please keep in mind that each individual, corporation and trust is unique and must consider their own circumstances to best manage the new, higher inclusion rates. Importantly, and again, please ensure that you speak to your Investment Advisor and/or your tax advisor first before taking any action that may result in a capital gain be realized – or deemed to have been realized for tax purposes – as no one wants to get caught in today’s larger inclusion net if it isn’t necessary.