LeBlanc’s Friday announcement seeks to deliver clarity to these Canadians and appease the many critics, including executives from tech darling Shopify Inc., who saw the capital gains hike as a way to drive innovation and talent out of the country. LeBlanc’s announcement included increasing the lifetime capital gains exemption to $1.25 million from the current amount of about $1 million on the sale of small business shares and farming and fishing properties.
The increase effective June 25, 2024 means Canadians with capital gains below $2.25 million would pay less tax, even after the inclusion rate increases on Jan. 1, 2026, LeBlanc said. The increase to the lifetime capital gains exemption will be paired with a new $250,000 annual threshold for Canadians effective Jan. 1, 2026.
What is the capital gains incentive?
Capital gains, including on the sale of a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax, the government said.
Rounding out LeBlanc’s Friday moves is a new Canadian Entrepreneurs’ Incentive, which drops the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.
The incentive would take effect starting in the 2025 tax year and the maximum would increase by $400,000 each year, reaching $2 million in 2029, the government said. It added that when combined with the new $1.25 million lifetime capital gains exemption, entrepreneurs would pay less tax and be better off on capital gains of up to $6.25 million.
The changes and the deferral didn’t assuage all the criticism.
Critique of the capital gains tax confusion
The Council of Canadian Innovators was disappointed the government didn’t admit it had been wrong about the policy introduced by former Finance Minister Chrystia Freeland, who has since committed to reversing the hike if she’s elected prime minister.
“Providing real certainty to Canadians would be to admit once and for all that this was a mistake and move on,” Benjamin Bergen, president of the organization representing 150 tech companies, said in an email.
Meanwhile, the Canadian Federation of Independent Business saw Friday’s announcement as “welcome news” for small businesses but warned there’s a lesson to be learned.
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