Capital gains tax in Canada was introduced in Canada in the year 1972 by the Federal government. Prior to 1972, one was not required to pay tax on capital gains in Canada. Capital gains tax in Canada was imposed with the aim of bringing about an equitable taxation system. Another reason for implementing the capital gains tax in Canada was to finance the social security system of Canada.
Between the years 1972 -1988, Canadians were required to pay tax for 50% of capital gains. In Ottawa, the government launched capital gains tax to get rid of inheritance tax. Thereafter, Capital Gains Tax Canada became prominent and individuals were expected to pay tax for only a part of the capital gains. Since then, rates, norms as well as exemptions pertaining to capital gains tax in Canada have been changing depending on the need of the hour. We can explain capital gains as the difference between the cost price and the sale price of an asset.
Example:It can be better understood by the following example. For instance, if an individual purchases 100 shares of a particular company, say X, for $50 each, the total cost of shares amounts to $5000. If the same set of shares were sold for $60 each, the individual would have made $1000 extra on the set of shares of the company X. In that case, profit of $1000 would have been regarded as capital gain.
Capital gains tax exemptions:However, there are circumstances when it is considered that capital gains are not made. Some of the examples include profits made from RRSPs(registered retirement savings plans), RESPs (registered education savings plans) and RRIFs( registered retirement income funds). Selling of ones place of residence does not attract capital gains tax.
Trends manifested in capital gains tax in Canada:
- During the period 1972 to 1988, the inclusion rate of capital gains tax in Canada was 50%
- In the year 1988, the inclusion rate of capital gains escalated to 66.66%
- In the year 1990, inclusion rate was 75%.
- in the year 2000, it decreased to 66.67%.