Tax Changes 2024 - CRA’s ‘Tax Fairness’ Initiative - Increase to Taxable Gains for high income individuals and businesses. How will your taxable gains be impacted this upcoming tax season.

Does increasing taxes for the upper class actually benefit the middle working class ?

Many people have the impression that higher earning individuals actually pay less in taxes. Which is sometimes true. But is that fair ? Should you pay less taxes if you are earning more ? Should lower earning individuals and businesses benefit from the relief of paying less in taxes ? CRA 2024 Tax Initiative 'Tax Fairness’ , has attempted to level the playing field by increasing taxes for higher earning tax payers, while leaving taxes for the working middle class unchanged. Is this initiative actually helping tax payers ? or rather just putting more tax dollars in the Canadian governments pockets.

Let’s first look how the ‘Tax Fairness’ initiative will effect tax payers. The initiative states that the capital gains inclusion rate - meaning the portion of capital gains that is taxable - will increase from 50% to 66% for both individuals and businesses for capital gains above $250,000.

What is a capital gain ? A Capital gain is the profit made when an asset, such as a stock or a rental property is sold.

What is the inclusion rate of Capital Gains - The inclusion rate is the amount of profit on capital gains that is taxable. For example, if you sold stocks and or other types of securities throughout the 2024 tax year and netted a profit of $260,000, the inclusion rate is the portion of the $260,000 that you are required to pay taxes on.

How the ‘tax fairness’ initiative will effect capital gains and your inclusion rate this tax year compared to years past ?

Capital Gains tax rules state that you only pay tax a portion of taxable gains. In prior years that inclusion rate was 50% for all capital gains. However, CRAs ‘tax fairness’ initiative mandates a 66% inclusion rate on capital gains above $250,000. Continuing the example from above, the $260,00 capital gain on the sale of your stocks and securities would be taxed as follows:

Prior to 2024 Tax Year:

$260,000 Capital Gain x 50% inclusion rate = $130,000 of the $260,000 would be taxable.

Beginning in 2024 Tax Year:

$260,000 Capital Gain x 50% inclusion rate on the first $250,000 = $125,000

Remaining $10,000 Capital gain x inclusion rate 66% = $6,600

Total = $131,000

Meaning $131,000 would be taxable in 2024 as opposed to $130,000. Assuming a tax rate of 35% that would cost this tax payers an additional $350 in taxes paid. Although that may not seem like a lot, the tax increase year over year will increase as your income continues to grow above $250,000

How will this effect me as a middle class individual or business ? If you are selling stocks or other such securities with capital gains throughout the year of over $250,000, this tax increase will directly impact you. However most middle class workers will have experiened less than $250,000 in capital gains in 2024.

How will this effect me if I sold a house in 2024? If you sell your primary house where you live, you will still be protected by the principle residence exemption (See Am I Required to Pay Tax on My Rental Property When I Sell ? for explanation of the principle residence exemption). If however you are selling a secondary property where you do not live, you will of course not be protected by the principle residence exemption. However as part of the ‘tax fairness’ initiate, CRA has made a stipulation allowing for no increase in taxable profit on capital gains on the first $500,000 of profit.

Who will feel the impact of this initiative the most? This 'Tax Fairness' initiative will impact wealthier members of society more so than others. Wealthier individuals tend to receive a higher portion of there income from Capital Gains proportionate to other forms of income. According to Stats Canada, the average yearly capital gains among the top 0.1% total income group in Canada was $684,100, which is well above the $250,000 tax fairness threshold. Meanwhile, the bottom 1% of tax filers had average capital gains of $30,000 and therefor this initiative would not effect the majority of people.

But does this tax initiative actually benefit lower income tax payers ? Although CRAs ‘Tax Fairness’ initiative may in someway level the playing field between higher and lower income tax payers, lower income individuals will not feel any relief as a result of this tax change. Lower income tax payers will still pay exactly what they paid in taxes on they’re capital gains that they have paid in past. How does someone else paying more in taxes benefit you ? Real tax breaks should be seen in tax reduction not tax increase to others. It appears that CRA simply has found a clever way to receive more taxes by increasing taxes towards the upper class, while taxes for the middle working class remain unchanged.

They say that Misery love company, but that is not true. Misery loves relief and CRA has dropped the ball on providing true relief to hard working middle class family’s.

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