New Capital Gains Tax Inclusion

Let’s consider the implications of the new capital gains tax inclusion.

Scenario: Muskoka Cottage

An elderly woman owns a cottage in Muskoka. She inherited it from her parents. Her principal residence exemption is in use, so she will have to pay taxes. Here are the relevant numbers:

  • $100,000 on 1 January 1972
  • $1,100,000 on the date of death        (principal residence exemption not available)
  • $1,000,000 capital gain
  • $500,000 taxable capital gain
  • $250,000 tax payable
  • Only income, $6,000 in OAS (usually no taxes payable)
  • Final tax year $3,000 paid in taxes on OAS amount
  • Her income in the year, usually being $6,000 is now $506,000, meaning that at a 50% tax rate she will pay $253,000 in taxes. Effectively, the government will scoop back half of her Old Age Security.

The NEW Rules

  • $100,000 on 1 January 1972
  • $1,100,000 on the date of death          (principal residence exemption not available)
  • $1,000,000 capital gain
  • taxable capital gain
  • now inclusion is 2/3rds of the capital gain subject to exemption of first $250,000 for individuals
  • For corporations and other entities, full 2/3rds, no exemption

Computation of Taxes under the New Rules

  • $1,000,000 capital gain
  • Inclusion in Income
  • First, $250,000 : 50% or $125,000
  • Next, $750,000: 66.66% or $525,025
  • Total taxable gain for inclusion in income in the year of disposition: $650,025
  • At 50% tax rate, the taxes payable will be $325,012.50
  • Additional Taxes: $75,012.50


  • Additional Taxes: $75,012.50
  • Computation based upon 52 years of ownership
  • 52 years of financial estate planning expecting $75,012.50 less
  • Preferred Introduction and Integration
  • New rates start effective 26 June 2024 based on current values
    • but this is not the case

Protect the Muskoka Gain

  • Consider an estate freeze
  • Consult with a tax lawyer
  • Ensure that Land Transfer Taxes are not applicable
  • Restriction if there is a mortgage in place
  • Opportunity limited until 24 June 2024


While this new system may seem unfair there is a short window of opportunity to avoid its imposition.

Why is part of the gain already exempt?

That’s basically due to inflation! There was no real gain, just a run up in the valuation numbers. So, the Federal Government concluded that a 50% exemption would make sense. Going forward, it’s 1/3rd.

So, act quickly if you wish to limit the impact.

Brian Madigan LL.B., Broker

Leave a Reply

Your email address will not be published. Required fields are marked *