Triggering a Capital Gain by June 25? Here are Five Ideas for What to Do with That Cash
Investors who have triggered capital gains, or who plan to before the inclusion rate goes up on June 25, have another decision to make: how to invest the sale proceeds. As most investors know by now, the recent federal budget proposed hiking the capital gains inclusion rate to 66.7 per cent from 50 per cent for individuals with gains of more than $250,000 annually. For corporations and trusts, the increase applies to every dollar of capital gains. While the Liberal government has yet to table legislation to enact the change, Finance Minister Chrystia Freeland has said it will come before the House of Commons adjourns for its summer break on June 21.
Some Canadians have already triggered capital gains, and others plan to by June 25 to avoid higher taxes on assets such as cottages, rental properties, and stock portfolios. Their next step is to review their financial and estate plans and determine how to deploy the sale proceeds. Here are five suggestions from advisors:
1. **Set aside money for taxes:**
The first move an investor should make when triggering a capital gain – especially if it’s a big one – is to set aside money to pay taxes on the gain. Leanne Scott, principal and portfolio manager at Vancouver-based Leith Wheeler Investment Counsel Ltd., recommends investing the money in short-term, risk-free assets such as guaranteed investment certificates or money market funds.
2. **Pay off debt:**
Dan Hallett, vice-president of research and principal at Highview Financial Group in Windsor, Ont., suggests using money from the proceeds of the sale of property or securities to pay off any existing debt. Making extra mortgage payments or setting aside funds for future payments is also recommended.
3. **Invest the money:**
Once the tax money is set aside and the debt is paid off, investors should consider investing proceeds from an asset sale in the financial markets. Wilmot George, head of tax, retirement, and estate planning at CI Global Asset Management in Toronto, advises starting with any unused contribution room in a tax-free savings account or a registered retirement savings plan.
4. **Give to children or charity:**
Many investors choose to donate money to charities or give to their children from the proceeds of an asset sale. Mr. George suggests donating to charities for a donation tax credit while Ms. Scott mentions parents gifting money to their children or grandchildren for various purposes.
5. **Have a bit of fun:**
In addition to investing and debt reduction, it’s important to set aside some of the proceeds for personal enjoyment. Dan Hallett emphasizes the importance of having fun with a windfall, whether it’s taking a trip or indulging in activities that bring joy.
Remember, life is short, and it’s essential to strike a balance between financial planning and enjoying the fruits of your labor.