In May 2024, we wrote an article detailing the changes that came out of the 2024 Federal Budget with respect to the taxation of capital gains and the corresponding impact on family law. While it was widely expected that those changes would be implemented and a large number of taxpayers planned around the June 25, 2024 implementation date, the Federal government recently announced that the changes are now being deferred until January 1, 2026. Given the current uncertainty with respect to a potential election and a change in Federal government, it is quite possible that the proposed changes from the 2024 Budget will not be implemented.
For details on the changes and the implications for family law, please see the original article here The 2024 Federal Budget & Capital Gains – Impact to Family Law – SB Partners
What has happened since the original announcement is as follows:
- Changes to the taxation of capital gains were not included in the main piece of legislation and instead were separated out. For some reason, it would appear that the Federal government was not in a rush to push the capital gains related tax legislation through. This delay has created challenges for taxpayers and tax return preparers given the uncertainty as to how to file tax returns that included capital gains transactions.
- In early 2025, the Canada Revenue Agency announced that it would be processing corporate and personal tax returns as if the legislation had been passed, even though it was not yet law.
- On January 31, 2025, the Federal Government announced the deferral of the changes specifically related to the capital gains inclusion rate until January 1, 2026. The one thing that was not deferred from the 2024 Federal Budget was the increase of the capital gains exemption on the sale of certain Qualified Small Business Corporation Shares and Qualified Farm Property. The increase to $1,250,000 is still effective as of June 25, 2024.
Based on what we have heard from the various federal political parties, it is believed that the changes to the inclusion rate (from 50% to 66.67% of capital gains for corporations and most trusts and from 50% to 66.67% on capital gains in excess of $250,000 for individuals) will not be implemented at all. That remains to be seen. For now, we are taking the position that the old rules (i.e. 50% inclusion rate) will continue to be in place (except for the increase in the capital gains exemption noted above) when we prepare our business valuation and income for support reports.
CPA, CA, CBV, CFF
