Entering capital gains with the new inclusion rate

The following is for informational purposes only, aimed at helping you make an informed decisions regarding your tax filings.

What is the change in the capital gains inclusion rate?

The 2024 federal budget announced an increase in the capital gains inclusion rate from one-half to two-thirds for corporations and trusts, and from one half to two-thirds on the portion of capital gains realized in the year that exceed $250,000 for individuals. These increases are for capital gains realized on or after June 25, 2024.

The proposed legislation has not yet been approved for the adjusted capital gains inclusion rate. You can read more about the new inclusion rate on the Department of Finance website.

Background on proposed changes

Tax preparation software manufacturers are awaiting guidance from the Canada Revenue Agency (CRA) on how taxpayers should address the capital gains inclusion rate increase. In addition, we are awaiting clarification from the CRA regarding the availability of updated forms and/or instructions necessary for the integration of this rate change in Pro Tax.

In light of this proposal, consider the following:

• Filing at the proposed rate of two-thirds (⅔). If the change does not pass, it may result in an overpayment of taxes, which the (CRA) can refund.

• Filing at the current rate of one-half (1/2). If the proposal passes, it may lead to an underpayment of taxes resulting in CRA-assessed interest and penalties.

As tax preparation software providers, we cannot advise on specific filing positions. We strongly recommend consulting with the CRA for guidance. The CRA is best suited to provide clarity on current legislation versus proposed changes.

Frequently Asked Questions

Will I face penalties for filing after June 25th without using the new rates?

If the proposed legislation increasing the capital gains inclusion rate passes and you have already filed your return using the 50% rate for capital gains realized after June 24, 2024, you will need to file an amended T2 return with the updated inclusion rate, which may result in a higher balance owing, which could lead to arrears interest and penalties.

Why is the Schedule 6 not updated in the R1 release for 11.2 release for Pro Tax?

A Notice of Ways and Means motion was tabled on September 23, 2024 for the proposed increase to the capital gains inclusion rate to 66.67%. This legislative measure is not yet passed and the CRA has not updated its forms to reflect this proposed change. For now, our software will continue to show the current version of the Schedule 6. We will update the software in a future release to incorporate the form when permissible by the CRA.

Can I override Schedule 6 to make adjustments to the capital gain or loss?

While you can override Schedule 6, be aware that your adjustments may not align with the CRA's calculations. This could result in a different balance owing, either higher or lower than what the CRA ultimately determines.

You can refer to the CRA website for more information.

Why is there no updated Schedule 3 in the 2024 T1 module? Are we going to get a new T1 Schedule 3?

This legislative measure is not yet passed and the CRA has not updated its forms to reflect this change. We will update the software in a future release to incorporate the form when permissible by the CRA.