Canada's capital gains tax increase comes into effect on June 25. Andrew Chang breaks down some misleading claims about the changes coming from both sides of...
I’ve been thinking about this quite a bit, and I’m still not sure why a 100% inclusion rate is a problem. (With various exemptions for primary residence sales and small business sales, maybe with a $1MM lifetime maximum? idk, just making up a number.)
Are they concerned that people just… aren’t going to invest their capital to earn more money if they’ll be taxed on the profits? Or is this just a global “race to the bottom” that they won’t invest in Canada because they can earn more if they invest elsewhere?
Maybe something like: 50% inclusion up to $100K, 75% inclusion up to $1MM, then 100% inclusion thereafter, and add a mechanism to spread capital gains over several years so people making single-lifetime large capital gains aren’t treated the same as people earning millions every year.
That would still incentivize small-business creation and startups without letting multimillionaires off the hook.
I like the cut of your jib. Some of the most vocal complaints are things like someone holding a cabin or other piece of land for an extended time, and then having to claim the gains in a single year. Especially in cases like an inherited cabin that’s held for 30 years then passed to next of kin so a particular owner never actually paid or was paid for the property, but probably did spend as much on maintenance over that time as their assessed gains. Spreading those gains across multiple tax years that have already been assessed would seem fair(letting them claim the gains at a lower marginal rate by spreading it over multiple years) though administratively difficult. I would also like the idea of putting in a lifetime exemption around the $250 k range which would make a big difference for those who might only ever pay capital gains due to that one property, but not really affect those who make most of their income as capital gains.
That’s the argument, but it doesn’t really hold water to me. That would lead to an environment where those with little capital get taxed on their entire income, making it hard to save more capital. Those that already have lots of capital could then leverage that capital to generate a tax-free(or limited tax) income, which seems like exactly what we’re trying to avoid. We do have TFSAs which do allow us to grow our assets tax free, and they’re limited to prevent those with excessive capital from dodging their entire tax burden.
To some extent, you might want it the other way around, those providing labour and covering basic living expenses should pay limited taxes(which is kind of how things work now when you consider the basic exemptions, GST rebates, child tax benefits, etc.) while those who have essentially a passive income should pay a higher rate. The argument for the current capital gains taxation is that you want to encourage people to invest in things like a business that grows the economy, rather than purely financial vehicles like bonds and loans that mostly just concentrate wealth without contributing to a healthy economy.
Oh I saw something in the globe yesterday about this. It’s because the corporations themselves pay income tax, which is essentially reducing the capital gain at the source. The numbers don’t seem to add up to me but I think I’d need an accountant to explain it.
Oh no, they closed a loophole for rich people to avoid taxes… anyway…
I wouldn’t say they closed it. They narrowed it.
I’ve been thinking about this quite a bit, and I’m still not sure why a 100% inclusion rate is a problem. (With various exemptions for primary residence sales and small business sales, maybe with a $1MM lifetime maximum? idk, just making up a number.)
Are they concerned that people just… aren’t going to invest their capital to earn more money if they’ll be taxed on the profits? Or is this just a global “race to the bottom” that they won’t invest in Canada because they can earn more if they invest elsewhere?
Maybe something like: 50% inclusion up to $100K, 75% inclusion up to $1MM, then 100% inclusion thereafter, and add a mechanism to spread capital gains over several years so people making single-lifetime large capital gains aren’t treated the same as people earning millions every year.
That would still incentivize small-business creation and startups without letting multimillionaires off the hook.
I like the cut of your jib. Some of the most vocal complaints are things like someone holding a cabin or other piece of land for an extended time, and then having to claim the gains in a single year. Especially in cases like an inherited cabin that’s held for 30 years then passed to next of kin so a particular owner never actually paid or was paid for the property, but probably did spend as much on maintenance over that time as their assessed gains. Spreading those gains across multiple tax years that have already been assessed would seem fair(letting them claim the gains at a lower marginal rate by spreading it over multiple years) though administratively difficult. I would also like the idea of putting in a lifetime exemption around the $250 k range which would make a big difference for those who might only ever pay capital gains due to that one property, but not really affect those who make most of their income as capital gains.
Maybe the thought is that they were already taxed on the capital when they earned it?
Not very compelling but it’s the only other reason I can think of.
That’s the argument, but it doesn’t really hold water to me. That would lead to an environment where those with little capital get taxed on their entire income, making it hard to save more capital. Those that already have lots of capital could then leverage that capital to generate a tax-free(or limited tax) income, which seems like exactly what we’re trying to avoid. We do have TFSAs which do allow us to grow our assets tax free, and they’re limited to prevent those with excessive capital from dodging their entire tax burden.
To some extent, you might want it the other way around, those providing labour and covering basic living expenses should pay limited taxes(which is kind of how things work now when you consider the basic exemptions, GST rebates, child tax benefits, etc.) while those who have essentially a passive income should pay a higher rate. The argument for the current capital gains taxation is that you want to encourage people to invest in things like a business that grows the economy, rather than purely financial vehicles like bonds and loans that mostly just concentrate wealth without contributing to a healthy economy.
Oh I saw something in the globe yesterday about this. It’s because the corporations themselves pay income tax, which is essentially reducing the capital gain at the source. The numbers don’t seem to add up to me but I think I’d need an accountant to explain it.
But isn’t the capital gains tax only on the new capital gained? What you’re saying actually sounds like a decent argument against sales taxes.