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Muskoka Financial, owning a cottage

The 2024 Federal Budget Capital Gains Inclusion Rate Increase

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Today we have a guest post written by Mohamed Rizwan Bachani, the President & CEO of Unique Accounting Services. Thank you Mohamed for providing clarity on the new capital gains hike for our clients and followers!

Mohamed Rizwan Bachani
Unique Accounting Services
909 Simcoe St. N., Suite 200
Oshawa, ON
L1G 4W1
Tel: (905) 903-7669
Fax: 1-866-209-6945
Email: info@uniqueaccountingservices.ca
Web: www.uniqueaccountingservices.ca

The implications of the 2024 Federal Budget’s increase in the capital gains inclusion rate aresubstantial and will affect many more Canadians than originally contemplated.

The 2024 Federal Budget has proposed significant changes to the capital gains inclusion rate, a move that has potentially significant tax and financial planning implications for taxpayers, especially those involved in recurring or singular high-value transactions. We will look into the specifics of these changes, their impact on different types of taxpayers, and outline strategic tax planning opportunities that could be advantageous before the new rules come into force.

The capital gains inclusion rate is not a direct tax. However, it determines how much of a capital gain must be included in a taxpayer’s taxable income. Since 2000, the rate has been set at 50%. For example, if an individual realized a capital gain of $100,000, only $50,000 would currently form part of taxable income.

The 2024 Federal Budget has proposed to increase the inclusion rate from 50% to 66.7% for dispositions of capital property occurring on or after June 25, 2024. For businesses and trusts, this rate applies to all capital gains. However, individuals will retain the 50% inclusion rate on the first $250,000 of capital gains per year. This change means a greater portion of capital gains will be taxable, effectively raising the tax burden on investments. Consider the following examples:

Impact on Individuals:

Example 1 ($100,000 total capital gain): $50,000 would be considered taxable income (50% of $100,000). As such, there is no change compared to the existing rules

Example 2 ($300,000 total capital gain): $158,333 would be considered taxable income (50% of $250,000 = $125,000 + 66.67% of $50,000 = $33,333). Hence, an additional $8,333 is added to taxable income compared to the existing rules (50% of $300,000 = $150,000)

Impact on Corporations and Trusts:

Example 1 ($100,000 total capital gain): $66,667 would be considered taxable income (66.67% of $100,000). Hence, an additional $16,667 is included in taxable income compared to the existing rules (50% of $100,000 = $50,000)

Example 2 ($300,000 capital gain): $200,000 would be considered taxable income (66.67% of $300,000). Hence, an additional $50,000 is included in taxable income compared to the existing rules (50% of $300,000 = $150,000)

Who Will Be Affected?

This change will predominantly impact:
1. High-income earners and affluent investors managing substantial capital gains
2. Business owners selling their shares for a significant gain
3. Corporations with investments in real estate, marketable securities and other capital assets
4. Estate inheritances where sizable capital gains are a factor

Tax Planning Opportunities

While it may seem like the simplest solution would be to incur capital gains prior to the proposed effective date of June 25, 2024, there are several variables at play and customized professional advice is vital to maximizing your tax savings. Some potential options are listed below to consider.

1. Realizing Gains Before the Change

Realizing the sale of assets before June 25, 2024, allows individuals and corporations to benefit from the current lower inclusion rate. Some potential pitfalls to this strategy include triggering alternative minimum tax. If selling residential real estate, properties held less than one year may be subject to the residential property flipping rule resulting in 100% of the gain being included as taxable income.

If a taxpayer has realized/unrealized capital losses, crystallizing a capital gain prior to June 25, 2024, becomes worth considering. This option may lead to cashflow issues as the tax needs to be paid without receiving any proceeds.

2. Strategic Use of Lifetime Capital Gains Exemptions

Maximizing use of the Lifetime Capital Gains Exemption (LCGE), which is increasing to $1.25 million, can significantly reduce taxable gains from the sale of qualified small business corporation shares and similar assets. Involving a family trust in the share ownership should be considered to potentially multiply the LCGE.

3. Revisiting Estate and Succession Plans

With higher future taxation on gains, revising estate and succession plans to incorporate these changes is crucial, potentially involving earlier transfers or restructuring of asset ownership. Life insurance planning to account for increased capital gains taxation on the death of a shareholder should also be reviewed.

4. Corporate Investing

Corporations might want to consider crystallizing gains prior to June 25th to enhance the corporation’s Capital Dividend Account which will otherwise be reduced from June 25th. The CDA represents the non-taxable portion of a corporate capital gain that can be extracted from the company tax-free. The cash obtained by the individual shareholder can then be invested in capital property and take advantage of the lower capital gains inclusion rate on the first $250,000 of annual capital gains which would not otherwise be available at the corporate level.

Also, consider investing in certain corporate class mutual funds that are structured to defer capital gains and provide for cash flow in the form of tax-free return of capital prior to their disposition. Corporate owned permanent life insurance with an investment component also serves to provide estate planning combined with tax free appreciation.

Conclusion

The upcoming increase in the capital gains inclusion rate presents both challenges and opportunities. Taxpayers, particularly those with potential high-value sales of capital property should consult with their tax advisors to assess the best strategies in light of these changes.

Thanks again to Mohamed Rizwan Bachani, President & CEO of Unique Accounting Services for writing this guest post for us!

Muskoka cottage life, Muskoka Lakes, Muskoka Lakes Association, owning a cottage

Muskoka Lakes Association January NewsBites

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As a cottager, I always found news from Muskoka warming this time of year. So here from the Muskoka Lakes Association is January NewsBites.

Courtesy of the Muskoka Lakes Association

Welcome to January 2015 NewsBites

The MLA reminds everyone to check their cottages and homes regularly during the winter season. The Muskoka area has received well over four feet of snow in the last few weeks and we encourage you to ensure your roofs are shovelled. It’s always good to routinely check your property. If you are unable to make the trip to Muskoka, there are many service Continue reading Muskoka Lakes Association January NewsBites →

cottage life, Lake Joseph, Lake Muskoka, Lake of Bays, Lake Rosseau, Muskoka Activities, Muskoka cottage life, Muskoka Lakes, owning a cottage, water

Muskoka Lakes Association – Ministry of Natural Resources – Muskoka Parry Sound Flood Warning update

The Muskoka Lakes Association just sent the following update which includes a detailed report from the Ministry of Natural Resources.
Specific current levels are indicated for the following lakes: Tea Lake, Kawagama Lake, Lake of Bays, Wood Lake, Fox Lake, Mary Lake, Lake Rosseau, Lake Joseph, Lake Muskoka, Go Home Lake, Perry Lake, Doe Lake, Bernard Lake, Cecebe Lake, Ahmic Lake, Forest Lake, Dollars Lake, Crane Lake, Otter Lake and Oastler Lake.
Plus the current status of the river flows for the Big East, North Muskoka, South Muskoka, Oxtongue, Black, North Magnetawan, South Magnetawan, Magnetawan, Moon River, Musquash River and the Shawanaga River.

Here’s the message from the MLA and the linked .pdf below it.

mloa

To: steve@cottageinmuskoka.ca:

As promised, the MLA continues to monitor water levels throughout our catchment area.
The attached freshet update, issued yesterday afternoon, details current watershed conditions throughout Muskoka/Parry Sound.
We encourage you to review the attached document, which provides significant detail, and to take action to protect property if your residence is located in one of the affected areas.

Muskoka Lakes Association

2546_MNR_Update_-_Parry_Sound_Muskoka_-_April_25_2014

client activities, cottage life, Gravenhurst, Muskoka Activities, Muskoka cottage life, owning a cottage, Volunteer

Stevenson Plumbing and Electric. “Working in the cold and dark to fix the problem.”

To have your customers recognize the lengths that you will go to, to take care of them – isn’t that the kind of testimonial we would all love to get, as thanks for what we do? An acknowledgement that our product or service accomplished exactly what was needed or desired, and performed under conditions and with such skill, that the customer couldn’t/wouldn’t take it on themselves.  Well, “Working in the cold and dark to fix the problem.” is one of Stevenson’s Plumbing and Electric client’s comment of thanks.

I love to recommend good people. And in this case, not just because they have done excellent work on huge and small jobs throughout Muskoka (I know – many, many of our cottage clients are big fans); everything from complete builds to emergency repairs and the annual closing and opening of the cottage in Muskoka. But because they contribute to our quality of life in countless other ways. I couldn’t begin to list the ways and the events that the Stevenson’s have contributed to the Muskoka community; it wouldn’t do them justice. It is quite simply countless. They invest, and are invested in our community.

This is a family owned and operated business with trucks full of good people and gizmos all over Muskoka.

Today, Stevenson Plumbing and Electric opened their doors with a BBQ to thank the community and celebrate their 20th year.

From left: Brent, Susan, Terry and Blake
The Stevenson’s. From left: Brent, Susan, Terry and Blake

In addition to the BBQ there was a “20 Year” cake and tours of their facility in Gravenhurst.

This was better than ANY aisle at Home Depot. I was amazed at what Stevenson's have at hand, and ready to deploy on that nasty problem.
This was better than ANY aisle at Home Depot. I was amazed at what was on hand, and ready to deploy on those nasty problems.

 

Buying a cottage, cottage life, Muskoka Activities, Muskoka cottage life, Muskoka Lakes, Muskoka Properties, Muskoka Watershed Council, owning a cottage, Stewardship, Three Mile Lake, Volunteer, water, water quality

Algae and Water Quality. Looking back to see the future

As mentioned in previous posts, cottage owners and cottage buyers want to know about water quality on lakes in Muskoka. Because water quality has a direct relationship to property value, and algae – particularly algal blooms – directly affect water quality, we all want to know as much as we can .

I just completed and uploaded a video here for the Muskoka Watershed Council YouTube page. The subject is a talk that was presented by Dr. Andrew Paterson of the Dorset Environmental Centre at the Muskoka Stewardship Conference at Nipissing University in Muskoka (Bracebridge). The event’s theme was What Are You Watching?

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This highly interesting talk looks at studying lake sediments deposited over hundreds – and even thousands of years. Sediments are archives of environmental change and within them are clues to possible triggers of algae outbreaks.

Dr. Paterson talks about sediment research done in Lake of the Woods in north-western Ontario and the Hudson Bay Lowlands which may help scientist understand occurrences in the lakes of Muskoka. There is discussion on the relationship between water quality and property value for cottagers. The seeming paradox of stable or even declining phosphorous levels – the usual algal bloom suspect- at the same time as blue-green outbreaks are increasing. And of course, the effect of climate change.

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Algal Bloom Three Mile Lake 2005

Of particular note is the 2005 toxic algal bloom in Three Mile Lake in 2005, where research may indicate the possible triggers of record high temperatures coupled with record low precipitation which occurred in the fall of 2005 in Muskoka.

Slide 1

There is significant evidence that a warming climate is related to the increase in algal blooms. Dr. Paterson suggests that if algae was the music that we hear from a radio: then phosphorous is the volume; other nutrients (particularly nitrogen), light, etc., influence what species are present – are the “tuning”; and climate is the antenna. The presentation concludes that blue-green algae likes it hot!

Slide 1

Click here for the link to the video on YouTube.

cottage life, Lake Muskoka, Muskoka cottage life, Muskoka Lakes, Muskoka Properties, owning a cottage, water

Flooding on Lake Muskoka

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Flooding on Lake Muskoka
Dock system completely submerged

These north Lake Muskoka clients are doing well so far, but holding their breath. They consider themselves very fortunate.

Many have fared worse, we just finished a conversation with Walker’s Point, Lake Muskoka cottagers whose entire 2 dock system has lifted right off the cribwork. “We are hoping that it sets itself right back in place when the water recedes. At least it’s still there; we’ve seen a few float by.”

cottage life, Invasive Species, Muskoka Activities, Muskoka Watershed Council, owning a cottage, Stewardship, Uncategorized, Volunteer, water

What do you really want to know? Muskoka Watershed Council wants to hear from you.

In cottage real estate we get asked a lot of questions: Is it weedy?; Eeeew! What’s that stuff?; Why don’t we see crayfish anymore?; My boathouse dock’s underwater – what’s with the water levels this year?; Is my water safe for swimming?; etc. It’s really a lot of fun to answer most of the time!
But here’s a chance to have some of what you want to know, perhaps monitored over time and have it reported on every 4 years!

As many readers of this weblog know, the Muskoka Watershed Council (MWC) is a volunteer based non-profit organization with the mandate to champion watershed health in Muskoka; I am one of those volunteers.

MWC produces a Report Card every four years. The Report Card is a science-based evaluation of the health of the water, land, and wetlands in Muskoka and the municipalities that share Muskoka’s watersheds. Three Watershed Report Cards have been released to date (2004, 2007 & 2010)  We are also assisting the Georgian Bay Biosphere Reserve with the development of a State of the Bay Report for Georgian Bay, which will be released this year.

For the next Watershed Report Card due to be released in 2014, we want to hear from you, what you want to know about the health of our watersheds.
Click on the page below to ask your questions or find out more.

2014_RC_Request

cottage life, Lake Joseph, Lake Muskoka, Muskoka Activities, Muskoka cottage life, owning a cottage, winter at the cottage

Spring in Muskoka? Nice, but still waiting.

It got up to 8 degrees C today, and really quite lovely, but we have some work to do to get all this ice and snow out of here. Other than today, our high temps have been -2 or so with night temperatures 10 degrees below that.  Lake Muskoka is still totally ice-covered, so the cottage awaits.

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Lake Muskoka at Hoc Roc river.

It looks like temps will be above freezing for … well, after tomorrow.

But, the ice is still very thick; hope so – we have to go price an island property on Lake Jo tomorrow, and we have to go by snowmobile. I might wear a CO2 lifejacket I got as a sailboat gift at Xmas … just for warmth of course.

cottage life, Gravenhurst, Lake Muskoka, Muskoka Activities, Muskoka cottage life, owning a cottage, winter at the cottage

Walking the Dogs

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There is a way to tell that it is spring in Muskoka. It is subtle, but encouraging because, you may know that we still have lots of snow here in Muskoka and we need encouragement. But we have light, more light, and I love light!

Steve and I walk the dogs late every afternoon. Until fairly recently we have had to outfit them with their special Muskoka walking lights. They fit on their collars and blink. Blinding for us, but safety for them. We march down by the cottages, leashes in hand. When we get to Chamberlain’s TimberMart, we can let them off their leashes. Chamberlain’s is gracious enough to let us walk our dogs offleash. And they have a wide dirt road, and a large forest. Good for everyone!

Peel out Boys!
Peel out Boys!

We are very proud of the fact that we walk our dogs daily. Caesar says that dogs need exercise first, discipline second and love third. So we are on it! Bentley is a little Muskoka boy through and through, and Askim is from Iqaluit. I will fill you in, in another post. Our dogs seem to love living in Muskoka and they look very fit and healthy. I, on the other hand, look a little less fit. Don’t worry about me, I am in good health, but my tummy just won’t budge from under my belt. It finally dawned on me why the dogs look so slim and fit and I don’t. They are constantly running in and out of the forest and playfighting all the way.

So – I am sure you can guess what is on the agenda for me. Steve???