Significant shifts in working and living arrangements have produced severe challenges and opportunities for individuals and businesses. As Canada and Canadians enter a new economic landscape, policymakers have made several changes in tax reforms.
Here are the following changes and their implication for individuals and businesses.
Recent Tax Reforms And Tax Fairness
The Canadian government has recently made many changes to capital gains taxation. Beginning on June 25, 2024, most individuals will start paying tax on two-thirds of capital gains over $250,000, while corporations and most trusts will pay tax on all capital gains.
This increase seeks to achieve and enhance tax equity within five fiscal years. The government will direct the funds towards different programs. Such as affordable housing, decreased living expenses, and other things that will help boost economic activity. Such reforms are supposed to benefit future generations, or Millennials and Gen Z, to be precise.
Implications For Individuals And Businesses
Through the tax reform above, the Canadian government has ensured that middle-class individuals and entrepreneurs have fewer taxes to pay. The government is maintaining existing capital gains exemptions and creating new exemptions, including:
- The Principal Residence Exemption (PRE) remains a major tax advantage for Canadian homeowners. This exclusion enables anyone to dispose of their residence without paying capital gain tax on any profit they make. This guarantees that Canadian citizens can acquire, trade, and reside in homes without incurring other expenses.
- The government has set a new annual limit of $250,000 to reduce the risk of increased taxes on minor profits. This means that people can sell some assets, including second homes, up to the threshold and still take advantage of the lower tax rate. For instance, a couple selling a cottage will not pay extra tax.
- Canadians can now redeem up to $1.25m in capital gains tax-free on the sales of qualifying property, such as shares of a small business, farm, or fishing corporation. This provides substantial tax savings for most Canadians, especially those in the agricultural field and small businesses.
- The Canadian Entrepreneurs’ Incentive provides a significant tax credit exemption to entrepreneurs. However, limiting the inclusion rate to one-third for eligible capital gains up to $2 million encourages entrepreneurs to create new and successful businesses. As the LCGE has increased, there’s more relief on the capital gains taxes, with the ceiling reduced to $6.25m.
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