Many Canadians have questions about Canada’s capital gains tax after an Ontario woman reportedly has to pay the taxes on property she wants to gift to her family.
Last week, CTV News reported that a 93-year-old woman attempted to gift her daughter and grandson two lots on her property, which turned out to be a costly endeavor due to the capital gains tax.
Liz Diachun, who has lived on her farm property for 58 years, wanted her family to live on the lots across the road. She explained her motivation in the interview, “With the cost of rent these days they are having to pay something like $2,500 a month to rent houses and who can save up for a down payment with rents like that.”
Despite her generous intention, Diachun was surprised to learn from her lawyer that she would have to pay capital gains taxes on the gifted land, as it is not her primary residence, which would be exempt from the tax.
“I said, why should I pay capital gains? I’m not selling it to them, I’m gifting it to them,” Diachun stated in the interview.
Although the lots she wanted to gift had their limitations—one with a hydro tower and the other with partial wetlands—they were appraised at a combined value of $270,000. Consequently, Diachun was confronted with a substantial bill of approximately $40,000 in capital gains taxes to the Canada Revenue Agency (CRA).
READ MORE: https://nowtoronto.com/news/clearing-up-confusion-over-capital-gains-tax-what-is-it-and-who-does-it-apply-to/
This story has since sparked significant reaction on social media, with many users expressing frustration over the capital gains tax rules and the federal government’s looming increase to the tax, while others pointed out that such taxation on gifted property has long been the norm.
Reaction on social media
Criticizing the government, an X user commented, “Prime example of what is wrong with this country and getting worse under Trudeau. Raising capital gains tax is not hurting the ‘richest of Canadians’; it is hurting the middle and upper middle class.”
Another commented, “She worked hard for it and can do whatever she wants! Not fair!”
While many shared the frustration, others pointed out that this has long been the case. One X user remarked, “Garbage journalism with no research. This has literally been this way for as long as I can remember. You gift a property, you will get taxed on it. This has nothing to do with the capital gains tax increase.”
Another user, who is “not fond of the Capital Gains Tax” but believed Diachun did not receive good tax advice, noted, “Nothing new here…this has always been the case. It’s a deemed disposition. She clearly did not get good tax advice. Not fond of the new capital gains rules…but this ain’t it.”
Another user reminded everyone that the new hike to the capital gains tax has not yet come into effect, “One problem… This is under the OLD capital gains tax, the new Liberal one hasn’t come into effect yet. Also, I’m supposed to feel bad that a lady is trying to gift a $250K piece of property and ALL they’ll have to pay is $40K? Really?”
What is the capital gains tax?
The federal government is poised to implement a change in the capital gains inclusion rate, increasing it from 50 per cent to 66.7 per cent on amounts exceeding $250,000, effective June 25.
Outlined in the 2024 budget, Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland proposed this adjustment to the inclusion rate for capital gains above $250,000 for individuals, shifting it from one-half to two-thirds. Under this change, individuals with gains below $250,000 will maintain the existing 50 per cent inclusion rate, while those exceeding this threshold will face a 66.7 per cent inclusion rate.
Freeland emphasized that these changes are primarily aimed at the wealthiest citizens, stating, “We are making Canada’s tax system more fair by ensuring the wealthiest pay their fair share.”
Gifting property under the capital gains tax
Under the new capital gains tax hike, there are no changes or additions to taxes associated with gifting property. However, the current rules will still be enforced where a capital gains tax will be applied to property that is gifted, depending on the profit it accrues.
The existing exemption for capital gains from selling a principal residence remains in place, ensuring that selling one’s home remains tax-free.
However, taxpayers who are gifted a property or inherit one from their family and then sell it could face a capital gains tax, depending on factors such as the size of the profit and whether the property becomes their primary residence. Canada considers gifted property as having been sold at its fair market value, and if the property has increased in value since its purchase, you will need to pay tax on the capital gain.
Additionally, when transferring property to family members as a gift, owners should consider other taxes, including the land transfer tax.
