Budget 2023: Capital Gains Taxation Updates
Ten-Year Capital Gains Reserve
Budget 2023 proposes to introduce a ten-year capital gains reserve, which would allow individuals to defer the payment of taxes on capital gains from the sale of qualifying small business shares for up to ten years.
Key Features of the Ten-Year Capital Gains Reserve
- Eligible shares must be held for a minimum of two years before the sale.
- The maximum amount that can be deferred is $500,000 per individual.
- The tax deferral is available for capital gains realized on the sale of shares in qualified small businesses, as defined in the Income Tax Act.
Increased AMT Capital Gains Inclusion Rate
Budget 2023 also proposes to increase the Alternative Minimum Tax (AMT) capital gains inclusion rate from 80% to 100%. This means that a higher portion of capital gains will be subject to AMT.
No Changes to Tax Rates or Reductions in Tax Credits
While there has been speculation about potential increases in tax rates or reductions in tax credits, Budget 2023 does not propose any such changes. The federal tax brackets and the majority of tax credits will remain the same.
Conclusion
Budget 2023 introduces several important changes to the taxation of capital gains. The ten-year capital gains reserve provides tax deferral opportunities for individuals selling qualifying small business shares. The increase in the AMT capital gains inclusion rate will result in higher AMT liability for individuals with significant capital gains. However, the budget does not propose any increases in tax rates or reductions in tax credits.
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