Federal Budget 2024 announced an increase of the capital gains inclusion rate from one-half (1/2) to two-thirds (2/3) on capital gains realized on or after June 25, 2024. The first $250,000 of capital gains realized per year by an individual would remain subject to the 50% inclusion rate.
In light of these proposed changes coming into effect on June 25, the timing of when capital gains arise has taken on new importance and some urgency where parties are in the midst of disposing of capital assets such as real property, including in the context of expropriations. As discussed below, in the context of an expropriation, the higher inclusion rate may apply even where the transfer of the property has already occurred.
In a non-expropriation/voluntary disposition context, the general rules of disposition pursuant to the Income Tax Act (Canada) apply when the proceeds are received and taxable. That is, capital gains are generally realized on closing (subject to a capital gains reserve where a portion of the proceeds are not receivable in the year of disposition).
However, special rules of disposition apply in an involuntary disposition context (e.g. expropriation). These rules apply to proceeds of disposition that are:
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