Canada’s Capital Gains Tax Update: What Aussie Expats Should Brace For?

Canada’s Capital Gains Tax Update: What Aussie Expats Should Brace For? – The winds of change are blowing through Canada’s tax environment, and they’re set to shake up how capital gains are handled.

Prime Minister Justin Trudeau’s government is gearing up to tweak the system, proposing a significant increase in the capital gains tax for individuals making over CAD 250,000 annually from their investments.

But it’s not just individuals feeling the pinch, companies and trusts are also in the crosshairs of these tax adjustments, according to the latest budget details.

Here’s a summary of the changes:

  • For corporations and trusts, the capital gains tax inclusion rate will bump up to 66.67% from the current 50%.
  • For individuals with gains exceeding $250,000, the capital gains tax inclusion rate will also increase to 66.67%.
  • For those with gains below $250,000, the rate remains at 50%.

Who’s going to feel the impact of these changes? Well, it’ll affect all corporations and trusts, no matter their value, along with individuals with capital gains of $250,000 or more.

For 99.87% of Canadians, personal income taxes on capital gains will not increase. Only 0.13% of Canadians with an average income of $1.42 million are expected to pay more personal income tax on their capital gains in any given year.

This unfortunately means that many Aussie expats who left Australia chasing higher incomes may be impacted.

In Canada, capital gains tax does not apply to your primary residence, so you these changes could affect you if:

  1. You sell a second property such as a rental or investment property, and earn more than $250,000 in profit from that sale.
  2. You sell investments such as direct shares for a value of $250,000 more than the original purchase price.


Case study: example of a high-income individual.


Jonny is a high-income individual living in Ontario with a $400,000 salary also has a $300,000 gain from the sale of a second investment property. Under the current rules, Jonny would pay income tax on 50% ($150,000) of that capital gain.

If Jonny was to wait and sell the property in 2025, he will now pay tax on $158,333 of the gain (50% x $250,000 = $125,000) plus (2/3 x $50,000 = $33,333) = $158,333).

Because of Jonny is on a high income which places him in the highest marginal tax rate the change to capital gains taxation will cost him $4,461 more in combined federal-provincial income tax.

Naturally, the bigger the gain, the bigger the taxes.


What do Australian expats need to consider?


If you’re an Australian expat living in Canada, chances are you find yourself among the ranks of high-income earners, potentially accompanied by a substantial accumulation of assets.

Maybe you’ve got a few properties, some stocks from your job or a solid investment portfolio. The immediate flag that raises with us, is an Aussie expats repatriation plan.

Typically, a repatriation plan would include the liquidation of local assets to relocate funds back home or to mitigate your Canadian departure tax.

However, with this change that timeline must be extended. No longer can you liquidate a range of assets in one fell swoop, but instead you would need to begin moving your assets home in the years prior to avoid the higher taxes applying.

Timing the sale of your assets will now become one of the biggest considerations for Aussie expats in Canada. It’s a big deal, and it’s worth taking the time to think it through carefully.


When will the changes take effect?


If approved, mark your calendar for June 25, 2024. According to estimates from the federal government, about 28.5 million Canadians won’t have any capital gains income next year, and another three million will fall below the $250,000 annual threshold.

This suggests that the majority of Canadians won’t be affected by these changes.

If you anticipate that these changes might impact your financial situation, it could be worthwhile to consult with a qualified tax advisor and financial planner.

They can provide insights and suggest strategies to mitigate the effects of capital gains taxes.

Like this article?

Share on Facebook
Share on Twitter
Share on Linkdin
Share on Pinterest

Sign up to receive news & financial tips directly