(Ottawa) Federal government changes to capital gains taxes come into effect Tuesday, despite strong resistance from business advocacy groups and doctors.
In her most recent budget, presented this spring, the Minister of Finance, Chrystia Freeland, proposed making two-thirds of capital gains taxable, i.e. profits made on the sale of assets such as a second home or shares, rather than half.
For capital gains of $250,000 or less for individuals, the inclusion rate remains the same, at 50%.
At a time when the Liberals are seeking to appeal to young voters, Prime Minister Justin Trudeau presented this measure as a way to ensure generational fairness.
The Liberal government says the $19.4 billion it hopes to raise over the next five years from this change will help fund housing and other priorities for young people.
Ms Freeland introduced a standalone motion on the changes, which was easily passed by the House of Commons earlier this month.
The New Democratic Party, the Bloc Québécois and the Greens voted with the Liberals in favor of the motion, while the Conservatives, who had until then remained silent on the changes, voted against.
Conservative Leader Pierre Poilievre insisted wealthier Canadians will find ways to move their money out of Canada to avoid paying the tax, which will negatively impact farmers, small businesses, doctors and builders of housing, in his opinion.
The changes have drawn backlash from business advocacy groups, who say the higher inclusion rate will hurt the economy by reducing competition and innovation.
Doctors’ associations have also spoken out against the measure, pointing out that many doctors have used their incorporated medical practices to invest and save for retirement.
But the Liberals have ignored this opposition, arguing that only a small portion of wealthier Canadians will face a higher tax bill.
In a speech earlier this month, Freeland asked Canada’s wealthiest what kind of country they want to live in.
The Finance Minister painted a bleak picture of the alternative to tax increases.
“Do you want to live in a country where those at the top live in luxury, but have to do it in gated communities, behind higher and higher fences, using health care and private planes, because the public sphere is so degraded that the anger of the vast majority of their less privileged compatriots burns so hot? “, pleaded Ms. Freeland.
Ottawa estimates that in any given year, 0.13% of Canadians will pay higher taxes on their capital gains.
To encourage entrepreneurship, the government is also proposing a new incentive for Canadian entrepreneurs, which will reduce the inclusion rate to one third on a lifetime maximum of 2 million in eligible capital gains.
A June 11 International Monetary Fund (IMF) statement, written by IMF staff following a regular visit to Canada, was quietly positive about proposed changes to capital gains taxation.
The statement said the change “improves the neutrality of the tax system with respect to different forms of capital income and is unlikely to have a significant impact on investment or productivity growth.”
