Personal Tax Update

Federal Tax Update

Capital Gains Tax Inclusion Rate

• Increased Inclusion Rate: The federal government has increased the capital gains inclusion rate from one-half to two-thirds for individuals’ capital gains exceeding $250,000 and for all capital gains of corporations and most trusts. This change was to take effect on June 25, 2024, but has now been postponed to January 1, 2026.

Lifetime Capital Gains Exemption

• Increased Exemption: The lifetime capital gains exemption for farmers and small businesses has been increased from just over $1 million to $1.25 million, effective June 25, 2024. 

Federal Property Flipping Tax

In Canada, the federal flipping tax rules are part of the broader taxation of real estate transactions and primarily target individuals who buy and sell properties quickly, also known as "flipping" real estate. The goal is to ensure that people who engage in property flipping (a business-like activity) are taxed appropriately. 

If you purchase a property with the intention of selling it quickly (property owned for less than 365 consecutive days), the profits will be considered business income rather than capital gains. This is important because:

• Business income is fully taxable at your marginal tax rate.
• Capital gains are only taxed on 50% of the profit at your marginal tax rate, which is much more favorable. So, if you're flipping properties as part of a business, the profit is considered income from business and taxed at a higher rate.
• Principal Residence Exemption: If the property is your principal residence (and you live there for more than 365 consecutive days), you may be eligible for the principal residence exemption on the capital gain. However, if you flip properties with no intention of living in them or sell within 365 days of purchase, this exemption won't apply.
• Certain life events exempt property sales from this rule such as separation or divorce, death, disability or illness, relocation for work, involuntary job loss, change in household membership, personal safety or insolvency.

First Home Savings Account (FHSA)

• FHSA is a registered account that gives prospective first-time home buyers $40,000 of additional tax-free savings room to save for a down payment.
• The FHSA contribution limit is $8,000 per year, and you can carry forward up to $8,000 of unused room for one year.  It is important to note that you must open an account in order to carry forward unused room.
• FHSA contributions are tax-deductible, and FHSA withdrawals are tax-free. Any money you earn inside the account is tax-free, as long as it goes towards buying a home. 

Home Buyers Plan/RRSP

• Under the federal government's Home Buyers' Plan, first-time home buyers can use a portion of your RRSP savings to help finance a home down payment.
• You can take out more money from your RRSP to buy or build a home—the maximum withdrawal amount has increased from $35,000 to $60,000, as of mid-April 2024. Couples can withdraw up to $120,000.
• Second, you have more time to pay back your RRSP. As a temporary relief measure, home buyers who make an HBP withdrawal between Jan. 1, 2022, and Dec. 31, 2025, have five years to start repayment. Previously, the grace period was two years. The repayment period itself hasn’t changed—it’s still 15 years. 

Canada Pension Plan (CPP) Contributions:

• 2025 will be the second year of enhanced Canada Pension Plan contribution requirements. Two ceilings are used to determine the maximum CPP contributions individuals must pay. The first ceiling is now $71,300, up from $68,500 in 2024 while the second ceiling in 2025 is $81,200, up from $73,200 in 2024. 

Trust Reporting Requirements:

• For the 2024 tax year, bare trusts are not required to file a T3 Income Tax and Information Return unless directly requested by the CRA. 

 Provincial Tax Update in British Columbia

 B.C. Home Flipping Tax

• Effective 1 January 2025, a new tax will be introduced on income from the sale of residential real estate in BC. For properties sold on or after 1 January 2025, the tax rate will be 20% for properties sold within 365 days of purchase, and the tax rate will decline to zero between 366 and 730 days. The tax will also apply to properties sold after the effective date where the property was purchased before 1 January 2025 and the property is sold within two years of its purchase. The tax will not apply to land or portions of land that are used for non-residential purposes. 

Exemptions will be available for:

• Certain life circumstances that may motivate the sale of a property within two years, such as separation or divorce, death, disability or illness, relocation for work, involuntary job loss, change in household membership, personal safety or insolvency; and 
• Taxpayers that add to the housing supply or engage in construction and real estate development.

In addition to the above exemptions, individuals selling their principal residence within two years of purchase will be able to exclude a maximum of $20,000 when calculating taxable income.

Legislation to introduce this measure is expected to be introduced in the spring.

 B.C. Renter’s Tax Credit

• For the 2024 tax year, this tax credit will give $400 to low- and moderate-income renter individuals and families with an adjusted income of $63,000 or less. Individuals and families with an adjusted income greater than $63,000 and less than $83,000 may receive a reduced amount. 

Property Transfer Tax

• Purchases of new qualifying purpose-built rental buildings will be exempt from the general property transfer tax, effective for transactions that occur between January 1, 2025, and December 31, 2030. Purpose-built rental buildings are generally properties that are non‑stratified and held as rentals, on a monthly basis or longer, for at least 10 years. To qualify, the residential portion of the property must be entirely used for rental activities and have at least four apartments.
• Effective April 1, 2024, the first-time home buyers’ exemption threshold is increased from a fair market value of $500,000 to $835,000, with the first $500,000 exempt from property transfer tax, resulting in savings of up to $8,000 for first-time home buyers.
• Effective April 1, 2024, the fair market value threshold for the newly built home exemption is increased from $750,000 to $1,100,000.

We recommend reviewing these updates carefully and consulting with us to understand how these changes may impact your personal and corporate tax filings.