The federal government has taken another legislative step towards increasing the capital gains inclusion rate.
On June 10, Canada’s Minister of Finance, Chrystia Freeland, tabled a motion in Parliament to implement changes to the capital gains tax (CGT). It was voted on and passed in the House of Commons the next day.
Capital gains are the net profit made from the sale of an asset, including cottages. Currently, Canadians are taxed at 50 per cent of the capital gain. The change would see the inclusion rate jump to two-thirds (about 66.7 per cent) of all capital gains above $250,000. Gains below $250,000 will continue to be taxed at the current rate of 50 per cent.
The federal government originally unveiled the proposal back in April’s 2024 federal budget announcement, then removed it to table it as a separate bill.
Freeland said that Canada needed the revenue from the upped tax to fund programs such as pharmacare, dental care, child care, and the green energy transition.
“The fair way to finance them is with tax fairness. That’s what we’re doing,” she said.
The government has received substantial pushback on the proposal, with many Canadians expressing concern that it will affect more than just the 0.13 per cent of wealthy Canadians.
“It’s disappointing,” says Peter Lillico, a lawyer and cottage succession expert in Peterborough, Ont. “There’s no question that they missed the mark when they initially announced it, and nothing has changed.”
Lillico believes that this change is being made because the government is trying to make up for previous overspending.
“They’re treating it as a fair housing measure when it’s anything but,” he says.
Conservative leader Pierre Poilievre and his party voted against the plan on Tuesday, calling it a “job-killing tax.”
“So, who will pay for this tax? Firstly, people who have one-time sales or disposal of long-term assets, like a grandmother trying to give some of her farmland to her children for homes,” Poilievre said in a 15-minute video posted to social media.
The CGT has drastically changed since its original implementation at 50 per cent in 1972. The tax gradually increased, hitting 75 per cent in 1990, then dropping back down to 50 per cent in 2000. This will be the first change to the inclusion rate in 24 years.
As the June 25 implementation looms, there likely isn’t enough time for cottagers who intend to sell or pass down their properties to get ahead of this tax increase.
“It’s too late to avoid it in the short-term,” says Steven Lavigne, an executive financial consultant at IG Wealth Management in Huntsville, Ont. “But you can get a good succession plan in place, and make sure you’re getting qualified advice.”
Lillico and Lavigne agree that starting the family conversation about cottage succession and setting up a thorough plan are the most important steps cottagers can take to protect their properties.
Meeting with the right financial advisors, lawyers, and accountants can make a big difference. “The best plans are the ones with a team approach,” says Lavigne.
All in all?
“The sky is not falling,” says Lillico, who notes that taxes are just one part of cottage succession. “More planning might need to be done to minimize the impacts of this change, but there are approaches you can take.”
Updated draft legislation of the changes are expected to be released in July.
Related Story Cottage Q&A: How the “bonus year” can reduce your capital gains tax
Related Story How the federal government’s recent capital gains announcement will impact cottagers
Related Story Re/Max report says cottagers expected to hold on to properties despite proposed capital gains changes