Quote:
Originally Posted by Table 5
A question for the accountants in regards to the impending raise of the capital gains tax (thanks again Justin!).
So I have an investment account under my corporation. These are mostly long-term holds, but with a currently decent profit on paper. Am I correct to assume that if I sell the winners before June, the capital gains will still only be taxed at the current 50% rate? My thinking is that I can sell the stocks now to lock in that tax rate, and then buy them up again.
Anything off with that line of thinking? I know I'll have to pay more taxes for the year, but would rather pay 50% now then 65% later.
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I would do the math, because if you're holding long term, there's a chance you'll come out behind by realizing the gains now. Yes, the inclusion rate is lower than it will be, but by paying the tax now, you're forgoing all the gains from the deferred taxes.
Just as an example assuming a $500K unrealized gain, 25% corporate tax rate, 8% annual return, a 15-year timeline, and that tax rates don't change:
Realize gain now at 50% inclusion rate:
Pay $62.5K in tax, leaving $437.5K to reinvest
At 8% over 15 years, you end up with $1.388M
Capital gains tax owing on the $950K gain would then be $159K
Total available to distribute after tax:
$1.229M ($1.388 - $159K tax)
Don't realize the gain now:
At 8% over 15 years you end up with $1.586M
Capital gains tax owing on that amount would be $266K
Total available to distribute after tax:
$1.32M ($1.586K - $266K tax)
So in that scenario, you come out about $90K ahead by not realizing the gain now. The numbers change depending on the timeline and growth, so it'd really depend on your situation.