93-year-old Ontario woman faces $40K tax bill on family land transfers

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A gift to her daughter and grandson has left a 93-year-old Ontario woman with sticker shock.

Liz Diachun told CTV News she was planning to give her family two lots on her farm property in Warkworth to help them establish homes. However, her lawyer informed her that despite the land being a gift, it still needed to be appraised at fair market value for tax purposes.

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The two lots were appraised at $125,000 and $145,000, totalling $270,000, leaving Diachun with a tax bill of about $40,000, an amount she said she cannot pay.

“I’m on pension. How am I going to pay for that?” said Diachun. “I’m not one of the wealthy. I’m 93 years old. Who is going to give me a mortgage? Who is going to give me a loan?”

Diachun is hopeful she can still find a way to make the gifts happen but the clock is ticking. Beginning next month, the capital gains tax inclusion rate will increase from 50 per cent to 67 per cent for amounts over $250,000​. Here’s what to know.

What is capital gains tax?

Capital gains tax applies to the profit made from selling a capital asset, such as stocks, real estate, or other investments.

The current system includes an inclusion rate of 50 per cent, meaning that only half of the capital gain is considered taxable income.

The taxable capital gain is taxed at personal income tax rates, which vary depending on an individual’s total income and the tax bracket they fall into.

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How is it changing?

Under the new federal budget, the inclusion rate will increase from 50 per cent to 66.5 per cent for capital gains exceeding $250,000 per year for individuals.

The changes are scheduled to take effect on June 25, though the Liberals have yet to introduce the legislation to increase the capital gains inclusion rate. The delay means Canadians like Diachun are in a tricky situation as they make decisions about selling, or gifting, major assets.

Earlier this week Finance Minister Chrystia Freeland said the legislative process will begin in the “coming weeks and certainly before the House rises (on June 21).”

In the meantime, Canadians are mulling major decisions without firm details about how the new policy might affect their tax bill.

For corporations and trusts, meanwhile, the new 66.5 per cent inclusion rate will apply to all capital gains, without the $250,000 threshold.

There will also be a one-time increase in the lifetime capital gains exemption for small business shares and qualifying farm or fishing properties, increasing from $1 million to $1.25 million.

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When was capital gains tax established and how has it changed?

It was first introduced in 1972 as part of the tax reforms implemented by Finance Minister Edgar Benson, a member of Prime Minister Pierre Trudeau’s government.

The tax was intended to broaden the tax base and tax income from investments similarly to income from labour. The rate when first implementation was 50 per cent, though it has fluctuated over the years, including jumping to 66 per cent in 1988 and 75 per cent in 1990.

In 2000, under Finance Minister Paul Martin, the rate dropped back to 50 per cent.

The upcoming changes are part of a strategy to make “the wealthiest Canadians pay their fair share,” according to the Liberal government.

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