{"id":2323,"date":"2024-06-19T20:49:31","date_gmt":"2024-06-19T20:49:31","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/crescowealthmanagement\/?p=2323"},"modified":"2024-06-19T20:49:31","modified_gmt":"2024-06-19T20:49:31","slug":"to-defer-or-not-to-defer-realizing-capital-gains","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/crescowealthmanagement\/2024\/06\/19\/to-defer-or-not-to-defer-realizing-capital-gains\/","title":{"rendered":"To Defer or Not to Defer: Realizing Capital Gains"},"content":{"rendered":"

increases to the capital gains inclusion rate<\/span><\/p>\n

The proposed* increases to the capital gains inclusion rate have prompted some investors to ask the tax-planning question: To defer, or not to defer<\/i>? Tax deferral is commonly viewed as a way for investors to create greater future returns, since funds that might otherwise go to paying tax can remain invested for longer-term growth. Yet, with increases to the capital gains inclusion rate, individuals may be evaluating the possibility of deferred taxation at higher rates against accelerated taxation at a lower rate. <\/span><\/p>\n

As one scenario, for a realized gain of $100,000 at a marginal tax rate of 48 percent, an investor would save $8,000 in tax by realizing a gain at the 1\/2 inclusion rate, rather than realizing the gain at the 2\/3 inclusion rate. However, this comes at the cost of \u201cpre-paying\u201d $24,000 in capital gains taxes. If this amount was instead invested in a portfolio returning 5 percent per year, it would take 9 years of tax-deferred growth at the higher 2\/3 inclusion rate to beat the $8,000 in tax savings.<\/span><\/p>\n

Here are some considerations for individual investors: <\/i><\/span><\/p>\n

Spread gains over multiple years <\/span><\/b>\u2014 Where possible, consider realizing gains over multiple years to make use of the lower inclusion rate (under $250,000) compared to a larger realized gain in a single year. <\/span><\/span><\/p>\n

Harvest gains<\/span><\/b> \u2014 Deliberately selling and rebuying stocks to trigger a capital gain may be a way to reset book value over time. This strategy is often considered for years when an investor is in a lower tax bracket, but may be used to capitalize on the lower inclusion rate each year. The decision may depend on a variety of factors such as time horizon, current\/future tax rates and potential growth rate of investments.<\/span><\/span><\/p>\n

Donate securities<\/span><\/b> \u2014 Assuming the new rules apply to the deemed disposition of assets at death, if you are considering donations to support a legacy, the use of publicly-listed securities may be beneficial. Any accrued capital gain is excluded from taxable income and a donation receipt equal to the value of the donated securities will be received. Note: For large donations other than in the year of death, the Alternative Minimum Tax may apply.<\/i><\/span><\/span><\/p>\n

Business owners <\/span><\/b>\u2014 Evaluate whether certain assets should be held in the corporation or owned personally. For corporations, there is no $250,000 threshold and 2\/3 of realized gains are taxable.<\/span><\/span><\/p>\n

Plan Ahead: <\/span><\/b>For many, the increased inclusion rate will mean higher future tax liabilities. Planning ahead is important. The use of insurance or other planning techniques may help to cover a higher tax bill, such as on the transfer of a family property or on death. For business owners, the use of corporate-owned insurance or an individual pension plan may support a business\u2019 tax strategy. Forward planning can also help access available exemptions, such as the lifetime capital gains exemption. As tax planning remains an important part of wealth planning, seek advice.<\/span><\/span><\/p>\n

*Please note: Legislation has not been enacted at the time of writing.<\/span><\/i><\/span><\/p>\n

How Much More Tax?<\/strong><\/p>\n

Additional Tax (%) on Capital Gains Over $250,000 for Top Marginal Tax Rates*<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Province<\/strong><\/td>\n1\/2 Inclusion<\/strong><\/td>\n2\/3 Inclusion<\/strong><\/td>\nAdditional Tax<\/strong><\/td>\n<\/tr>\n
AB<\/td>\n24.00%<\/td>\n32.00%<\/td>\n8.00%<\/td>\n<\/tr>\n
BC<\/td>\n26.75%<\/td>\n35.67%<\/td>\n8.92%<\/td>\n<\/tr>\n
MB<\/td>\n25.20%<\/td>\n33.60%<\/td>\n8.40%<\/td>\n<\/tr>\n
NB<\/td>\n26.25%<\/td>\n35.00%<\/td>\n8.75%<\/td>\n<\/tr>\n
NL\/LB<\/td>\n27.40%<\/td>\n36.53%<\/td>\n9.13%<\/td>\n<\/tr>\n
NS<\/td>\n27.00%<\/td>\n36.00%<\/td>\n9.00%<\/td>\n<\/tr>\n
ON<\/td>\n26.77%<\/td>\n35.69%<\/td>\n8.92%<\/td>\n<\/tr>\n
PEI<\/td>\n25.88%<\/td>\n34.50%<\/td>\n8.63%<\/td>\n<\/tr>\n
QC<\/td>\n26.66%<\/td>\n35.54%<\/td>\n8.89%<\/td>\n<\/tr>\n
SK<\/td>\n23.75%<\/td>\n31.67%<\/td>\n7.92%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

increases to the capital gains inclusion rate The proposed* increases to the capital gains inclusion rate have prompted some investors to ask the tax-planning question: To defer, or not to defer? Tax deferral is commonly viewed as a way for investors to create greater future returns, since funds that might otherwise go to paying tax […]<\/p>\n","protected":false},"author":129,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2323","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\nTo Defer or Not to Defer: Realizing Capital Gains - Cresco Wealth Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/advisor.wellington-altus.ca\/crescowealthmanagement\/2024\/06\/19\/to-defer-or-not-to-defer-realizing-capital-gains\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"To Defer or Not to Defer: Realizing Capital Gains - Cresco Wealth Management\" \/>\n<meta property=\"og:description\" content=\"increases to the capital gains inclusion rate The proposed* increases to the capital gains inclusion rate have prompted some investors to ask the tax-planning question: To defer, or not to defer? 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