Capital Gains inclusion Rate increase

Recent changes to Canada's capital gains inclusion rate have sparked fresh confusion among some property owners about how this will affect them, while others are just realizing for the first time that the capital gains tax might apply to them after all.

Anyone who owns a second house or condominium should already know that the tax applies to the sale of those properties. What people might not realize is that it also applies when an ownership of an eligible property or investment is transferred or "passed down" to, for example, children or grandchildren.

Or, they might be surprised to learn that the tax applies to the sale of something like a cemetery plot, a hunting camp, a collection of rare baseball cards or a painting.

Here are some of the lesser-known ways the capital gains tax might apply to you, and expert tips for navigating it.

How it works

The capital gains tax applies to most properties and investments whose value increases over time and which are sold for a profit. Some things that gain value are exempt from this specific tax, such as primary homes and goods purchased and sold as part of a personal business.

If you sell something that is not exempt from capital gains taxation and the sale nets you a profit of $1,000 or more, 50 per cent of that profit – or capital gain – is subject to capital gains taxation. That rate of 50 per cent is known as the inclusion rate. As of June 25, if you pocket more than $250,000 or more in capital gains in a year, your inclusion rate jumps to 67 per cent.

Cottages and land

The capital gains tax does not apply to primary homes, but it does apply to secondary homes and investment properties such as cottages, hunting camps and empty land.

It also applies — based on the increase in property value — when one of these properties is gifted or bequeathed to someone else, even if no money is exchanged. This means either the person gifting the property or the person receiving it needs to have money set aside to pay the tax at the time of the transfer.

For properties that have appreciated by more than $250,000, the amount of money required to pay the tax if that property is gifted or bequeathed instead of sold is now higher as of June 25.

Burial plots

Another piece of property some people might not realize is subject to capital gains taxation is the one that's meant to be your final resting place. If, for some reason, a person decides to sell or gift their burial plot and it has gained $1,000 or more in value since they bought it, the capital gains tax applies.