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By: Florence Marino B.A., LL.B., TEP | Vice President, Tax & Estate Planning

On Tuesday, April 16, 2024, Finance Minister Chrystia Freeland released the 2024 Federal budget. By now you’ve read the summaries and digested some of the impacts. Here is what we think about the inclusion rate changes, looking through a distinctly insurance-focused lens.

What was expected and feared beforehand

The signalling prior to the budget had many commentators speculating about another top bracket for high income individuals. General tax rate increases were also a source of anxiety. And the idea of a “wealth tax” was lurking in the back of our minds since this was floated prior to the 2021 Federal budget as a possible option. At that time, instead, a new tax on luxury vehicles, aircraft and boats was introduced.

This budget didn’t touch general tax rates, introduce a new top bracket or wealth tax, rather, it proposes an increase in the capital gains inclusion rate and provides pockets of new and increased exemptions from capital gains tax for dispositions of certain qualifying shares. These exemptions – an increase to the existing lifetime capital gains exemption to $1.25 million with resumed indexation in 2026; an additional new Canadian Entrepreneurs’ Incentive; and, the details of qualification and disqualification for a $10 million capital gains exemption for sale of shares to an Employee Ownership Trust before December 31, 2026 – will be the subject of future TOMPKINSights articles.

Increase in the capital gains inclusion rate

The capital gains inclusion rate will increase from 50% to 66.66% for corporations and trusts – making 33.33% non-taxable (i.e., credited to the capital dividend account of private companies). For individuals, the increased inclusion rate is to apply on the portion of capital gains realized directly, or indirectly (through a trust or partnership), in the year that exceeds $250,000. This will apply to capital gains realized on or after June 25, 2024.

The $250,000 annual threshold will be fully available and not be prorated in 2024. The rules will allow capital losses realized prior to the inclusion rate change to fully offset an equivalent capital gain realized after the change by adjusting their value to reflect the inclusion rate of the capital gains being offset. For tax years that begin before and end on or after June 25, 2024, there will be two inclusion rates – 50% before June 25 and 66.66% on or after June 25.

Where an individual claims the employee stock option deduction, the deduction of the taxable benefit is at 33.33% of the taxable benefit but the individual would be entitled to a deduction for 50% up to the combined annual limit of $250,000 for both employee stock options and capital gains.

More details will follow through consequential amendments to reflect the new inclusion rate throughout the Act.


No changes were made to the principal residence exemption. No change was made to the zero inclusion rate in respect of a gift of publicly listed securities. Interestingly also, for individuals, the increase in the capital gains inclusion rate effectively eliminates the general application of alternative minimum tax (AMT) to capital gains realized by individuals. But, if triggering capital gains before June 25, 2024, AMT implications will have to be considered since, the changes to AMT are to be effective for taxation years that begin on or after January 1, 2024. AMT will be the subject of a future TOMPKINSights article.

The impacts

The higher capital gains inclusion rate will mean higher tax liabilities on death. Funding for tax liabilities using life insurance is an obvious solution and more insurance will be required going forward. In general, on sale of business transactions, deferred tax liabilities will also be higher and will require larger insurance amounts to fund ultimate tax liabilities.

For corporations, there are several impacts. As noted above for private companies, the CDA credit for non-taxable portion of capital gains will be 33.33% of the gain. Capital gains will increase adjusted aggregate investment income (AAII), that grinds the small business deduction, at a quicker rate. Capital losses which will reduce capital gains at the same inclusion rate as the capital gain, will become more valuable at a 66.66% inclusion rate.

These changes will reduce the tax gap between dividends and capital gains. This reduction in the difference, combined with the focus on capital gains strips in the new GAAR measures (A new GAAR – Pretty chilly right now) may disincentivize capital gains strip transactions. It may also result in revisiting the investment mix between personal and corporate portfolios to allow individuals to take advantage of the 50% capital gains inclusion rate below the $250,000 annual threshold.

From a post-mortem planning perspective, the metrics have also changed as a result of the inclusion rate change. Post-mortem pipeline transactions that aim to resolve the double tax problem on death by paying one level of tax at capital gains tax rates in the terminal return, will result in higher tax liabilities where the gain is in excess of $250,000. Life insurance can not only fund the tax liability that will arise but can reduce the tax liability itself since life insurance death benefits less the adjusted cost basis of the policy credit the CDA. By combining insured share redemption loss carry-back planning and pipeline planning, net estate values can be increased. (Post-mortem pipelines under the new GAAR are OK) The “50% solution” to avoid the impact of the stop-loss rules will become the “33.33% solution”.

Action steps

The changed inclusion rate will require review of existing insurance in place to fund capital gains tax liabilities and other deferred taxes arising on death. Where no insurance is in place, the need for liquidity will become more acute. Life insurance can improve post-mortem tax planning in the private company context by injecting capital dividends into the mix – paying the tax and reducing the liability at the same time.


This publication is protected by copyright. Tompkins Insurance is not engaged in rendering tax or legal advice. TOMPKINSights contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice.

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