How to reduce capital gains taxes in Canada?

📈 How to Reduce Capital Gains Taxes in Canada?

Are you looking to minimize your capital gains taxes in Canada? In this video, we'll explore effective strategies to help you keep more of your hard-earned money. Here's what we'll cover:

🔍 What are Capital Gains Taxes?
We'll start by explaining what capital gains taxes are and how they impact your investments.

💰 RRSP Contributions
Learn how contributing to your Registered Retirement Savings Plan (RRSP) can defer taxes and reduce your taxable income.

👨‍👩‍👧 Family Trust
Discover how setting up a family trust can help distribute income among family members to lower your tax liability.

♻️ Tax-Deferred Roll-Over
We’ll discuss how a tax-deferred roll-over can help you reinvest gains without triggering immediate taxes.

📉 Application of Capital Losses
Understand how you can offset your capital gains by applying capital losses from other investments.

📊 Purchase Stocks Individually
Find out why buying individual stocks, instead of mutual funds, can give you more control over your capital gains.

🧠 Conclusion
We'll wrap up with key takeaways and the best strategies to implement in your financial planning.

Stay tuned to make smarter investment decisions and keep more money in your pocket!

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1. Youtube Channel – Real estate and Taxes with Lakshay

2. How to reduce capital gains taxes in Canada? By Lakshay Gandhi CPA 647-987-4025 [email protected]

3. Agenda Define capital gains taxes 6 strategies to reduce capital gains taxes Key takeaways

4. What are capital gains taxes? Property purchased for $500,000 in 2017 and sold for $700,000 in 2022 Capital Gains = Net Proceed – Adjusted Cost Base = $200,000 Minimize Net Proceeds Sale price – Sales commission and HST – Legal fees – Mortgage penalty – Other costs to sell b) Maximize Adjusted Cost Base Purchase Price + Legal fees + Land transfer tax + Capital improvements

5. 1. Sell assets gradually - Capital gains reserve If proceeds from a disposition trigger a capital gain, but not all proceeds are received in the year of the sale, it may be possible to defer taxation of a “reasonable” portion of the gain until the year when the remaining proceeds become receivable. Generally, this capital gains reserve can be claimed for up to five years, with a minimum (cumulative) 20% income inclusion each year. This five-year time frame can be extended to 10 years in certain situations, such as the sale of Qualifying Small Business Corporation (“QSBC”) shares to a child or grandchild.

6. 2. RRSP contributions The extra cash flow from the sale of an investment could be directed towards a larger Registered Retirement Savings Plan (“RRSP”) contribution, especially where the individual has significant unused RRSP contribution room from prior years. Alternatively, in the right circumstances (subject to the investor’s tolerance for risk and upon consideration of all tax implications, including the potential for alternative minimum tax), the purchase of a tax- favoured investment – such as flow-through shares – can be used to defer the tax payable in the year a large capital gain is generated.

7. 3. Family trust Create a family trust and split your capital gains with family members For example $1m capital gains can be split with 4 family members that are in lower income, effectively lowering tax bill Each individual has $250,000 capital gains limit – 50%

8. 4 . Tax-deferred roll-over Section 85 and 86 Many corporate takeovers allow the disposing shareholders to exchange all, or a portion of their shares for shares of the acquiring corporation. This option generally provides a Canadian shareholder with the opportunity to defer tax on any accrued gains on the old shares by filing the necessary tax election forms prior to the prescribed deadlines. This tax-deferred roll-over is generally available in share-for-share exchanges involving Canadian companies, and is sometimes available in certain cross-border exchanges (if properly structured). However, a share acquisition where the only consideration received is cash will generally result in the realization of any accrued capital gain/loss, thereby potentially generating a current tax liability. In addition, it should be noted that a related provision in the tax law provides that an exchange of shares of a mutual fund corporation that results in the investor switching between funds will no longer occur on a tax-deferred roll-over basis. Instead the exchange will generally be considered a disposition at fair market value for tax purposes.

9. 5. Application of capital losses Tax-loss harvesting occurs when you sell an investment that has dropped below its original purchase price, triggering a capital loss Capital losses can be used to reduce capital gains in the current year, the three preceding years, or in any future year. For example, if you sold an investment at a $20,000 loss during the 2022 tax year, but didn't have a capital gain from the same year or any of the three preceding years, the loss can sit there, available to be used against future capital gains.

10. 6. Purchase stocks individually Capital gains tax rate under corporation is 67% Personal 50% Its better to buy stocks individually

11. Conclusion Make installments Principal residence exemption Life-time capital gain taxes (sale of share- 1.25M) Increased capital gains taxes on hold

12. Thank you By Lakshay Gandhi CPA 647-987-4025 [email protected]