Canadian Lifetime Capital Gains Exemption Updates

Canada Raises the Lifetime Capital Gains Exemption - What it means for you

More capital gains may now be tax-free to you - but only if you qualify AND you file properly!

Quick Summary

Beginning for depositions on or after June 25, 2024, the lifetime capital gains exemption threshold increased from $1,016,836 to $1,250,000. This means that eligible individuals will now be able to exempt more capital gains from tax (this ignores the impact of Alternative Minimum Tax - check out our AMT article to understand how that could apply). 

To be eligible for this exemption, you must be selling a qualified farm or fishing property, or shares of a qualified small business corporation. 

Shareholders that are looking to sell shares of their small business are encouraged to look into whether their small business corporation can qualify for this exemption - and what to do to make it qualify if it does not - and  how they might be able to utilize this exemption for multiple family members.

What is the Lifetime Capital Gains Exemption?

The Lifetime Capital Gains Exemption reduces the amount of a gain that is subject to tax for qualifying assets. After the change, this exemption can allow up to $1,250,000 of total gains over a lifetime to be exempt from tax. Starting in 2026, the gain would be indexed with inflation, increasing every year thereafter.

Example After Change

• You own a qualified fishing property and sell it for a total gain of $1,100,000 after June 25, 2024.

• The lifetime capital gains exemption shelters up to $1,250,000 from the capital gains tax.

• The entire $1,100,000 is excluded from your income (again, Alternative Minimum Tax may still apply)

• $1,250,000 - $1,100,000 = $150,000

• You still have $150,000 of exemption you can use in future years, subject to increase from indexation

How To Maximize

If you own any such property and are looking to sell, we encourage you to reach out to us. We can help you to determine whether your property or shares can qualify for this exemption, and how you might be able to maximize the utilization of this exemption by including multiple family members in the sale.

Our explanation is straightforward (we think).  

Unfortunately, we cannot say the same about the rules.

There are many conditions that need to be met, anti-avoidance rules to consider, and time-based tests that must be met - some of them for two years preceding the sale - which may require you to defer a sale until the time test can be met. 

Even if you meet the required time tests, there are point-in-time tests that also must be met - meaning, immediately before the sale closes, there are certain thresholds and asset mix tests that must be met. Proper planning is absolutely critical to ensure that, at the last minute, something doesn't go wrong.

If you own such a property, even if you’re not currently considering a sale, the best time to plan for it is NOW - you never know when life circumstances change, or you get an unsolicited offer you just can’t refuse.  

Book a free consult here.