The federal budget released earlier this month proposed changes to capital gains inclusion rates, with officials stating that they expect only the wealthiest, or top 0.13 per cent of Canadians, will be affected by the tax hikes. But that’s not entirely accurate.

To understand why, it’s useful to consider the cases of several hypothetical Toronto investors who hold identical assets with identical accrued capital gains. Until June 25, 2024, their tax treatment would be similar, but after June 25, 2024, it will differ quite significantly.

In the budget announcement, the federal government proposed an increase to the capital gains inclusion rate for gains realized on or after June 25, 2024. For individuals, capital gains up to $250,000 will be subject to the current inclusion rate of 50 per cent, but capital gains in excess of $250,000 will be subject an inclusion rate of 66.7 per cent, or two-thirds. For corporations and trusts, all capital gains will be subject to the new inclusion rates of two-thirds.

The proposed rules favour personal (individual) ownership over corporate ownership and encourage joint ownership with family members. On June 25, the affected taxpayers will see an overnight tax hike of up to a staggering eight percentage points, taking them from the current maximum effective tax rate of up to 27 per cent to approximately 35 per cent in Ontario.