All About Estates

Unrealized Capital Gains: Take Action Now?

As we head toward another federal budget to be released on March 22, there is much speculation about a change in the capital gain inclusion rate from 50% to 66.67% or 75%.

Current Capital Gain Tax
As the rules are currently written, only 50% of a capital gain is subject to tax in Canada. For an Ontario resident, the combined Federal and Ontario tax rate applicable to a high rate taxpayer is 26.8% which compares favorably to salary at 53.5% and non-eligible dividends at 45.3%. History has shown us when the gap between the capital gain and dividend tax rate is this great that a change is in order to narrow the gap.

One way for the federal government to narrow the gap would be to increase the capital gain inclusion rate from 50% to 66.67% or possibly 75%. The rate increase is likely to translate into a tax increase on the capital gain of one-third or one half.

What You Can Do
If you have an estate or trust that contains capital property or properties (e.g. real estate, stock portfolio, private company capital stock) with some significant “unlocked” gains and wind up of the estate or trust is imminent, you can lock in the current 50% inclusion rate by taking action before the 2017 Federal Budget is delivered. If you are not selling capital property in the very near term you could effect a sale to a related person and crystallize the capital gain at the current 50% inclusion rate.

There are a number of strategies available to fit the circumstances. The strategies are tax neutral and will not cause unnecessary tax if the speculation about a capital gain rate change is false.

Next Step
Always best to consult your pros before taking any action.

Happy Reading

About Steven Frye
Baker Tilly WM LLP is a leading, independent audit, tax, and business advisory firm based in Vancouver and Toronto, serving clients across Canada. Drawing on well-trained teams across a variety of disciplines, we ensure the alignment of our professional’s skills and experience with client requirements, resulting in exceptional service and business outcomes.


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