What is the Capital Gains Tax?
The capital gains tax is the tax individuals pay when selling an asset or capital property. Capital gains are the profits from the sale. Common types of capital properties include cottages, securities (such as stocks, bonds and unit of a mutual fund trust), land, buildings, and equipment used in a business or rental operation. The new rules will be effective 25 June 2024. 
How Much do I Pay?
Canadians must report taxable capital gains as income on their tax return. Under the new plan, the capital gains inclusion rate would rise from 50% to 67% for those with more than $250,000 in capital gains in a year. A capital gain is the difference between the sale price and the total of a property’s purchase price, including acquisition costs, and any expenses incurred from the sale.
Capital Gains Example:
This example uses the current capital gains inclusion rate, that requires half of the capital gains to be taxed. If you sold an asset for $500,000, with a purchase price of $100,000, your capital gain is $400,000. The taxable capital gain is $200,000. Once the new rate of 67% takes effect on June 25th, the capital gains tax will be higher for amounts over $250,000, but amounts $250,000 and below will be taxed at the old 50% rate.
How does Capital Gains Tax affect Homeowners?
Many Canadians could feel the impact of this tax change, such as through the sale of their cottages and other secondary residences or rental properties. You realize a capital gain when you sell your home. However, you don’t have to pay tax on the gain if the property was solely your principal residence for every year you owned it. A principal residence applies to a house, cottage, condominium, apartment in an apartment building or duplex, trailer, mobile home or houseboat that an individual usually inhabits.
In addition to people who purchased second homes for recreation, or to earn extra income, some affected by the change may have purchased these properties as part of their retirement plan. You can only designate one home as your principal residence for each year.
Capital gain income is a sign that your investments are growing. Careful planning, however, is essential when it comes to getting the best tax benefit.
Please note that this article is for information purposes only and you should contact your accountant for tax advice.
Original article: www.canada.ca and www.ctvnews.ca
