How to handle the two capital gains inclusion rates planned for this year

financialpost.com:

One area that has sparked a lot of questions since budget day about the proposed increase in the capital gains inclusion rate is how capital losses will be treated, particularly this year when two separate rates will apply.

A capital loss typically occurs when you sell an investment for less than you paid for it. For example, if you bought shares for $10,000 and sold them for only $4,000, you would have a capital loss of $6,000. This capital loss can only be applied against other capital gains.

First, you must apply them against other capital gains in the tax year in which the capital loss was realized. Once you’ve exhausted all gains in that current year, you can choose to carry any net capital loss back and apply it against any taxable capital gains in any of the previous three years. Alternatively, they can be carried forward indefinitely and used to reduce taxable capital gains in any future year.

But how will the loss carryback and carryforward rules apply with the change in inclusion rates? What if a loss is realized when the inclusion rate was 50 per cent, but the gain to which you want to apply that loss is at the new two-thirds inclusion rate? And how do taxpayers deal with the two separate inclusion rates in 2024? The draft legislation and backgrounder released this week help answer these questions.

Under the proposed legislation passed by the House of Commons on Tuesday, net capital losses realized in other tax years are deductible against current-year taxable capital gains by adjusting their value to reflect the inclusion rate of the capital gains being offset. This means that a capital loss that was realized when one inclusion rate was applied can still fully offset an equivalent capital gain realized in a