Initial Move by Liberal Administration to Revise Capital Gains Tax Underway
In a significant move, Finance Minister Chrystia Freeland has initiated the first legislative action towards enacting the proposed alterations to the capital gains tax by the government.
This initial step, marked by the introduction of a ways and means motion in the House of Commons on Monday, precedes the formal tabling of legislation and is poised for voting later this week.
The amendment entails an elevation in the “inclusion rate” – transitioning from one-half to two-thirds on capital gains exceeding $250,000 for individuals – a measure outlined in the recent budget announcement.
Freeland emphasized the necessity of this tax adjustment to bolster Canada’s revenue stream, earmarking funds for vital sectors such as pharmacare, dental care, childcare, and the green energy transition.
She asserted, “The fair way to finance them is with tax fairness. That’s what we’re doing.”
Following the unveiling of the tax revision, the Liberal government opted to detach the provision from its budget implementation bill, committing to introduce a separate bill mandating its own parliamentary vote.”
Press Secretary Sam Lilly, representing Conservative Leader Pierre Poilievre, issued a statement characterizing the capital gains alterations as “a levy on healthcare, home construction, small enterprises, farmers, and individuals’ retirement savings.”
Lilly emphasized that the adjustment is being introduced to offset the “inflationary expenditure outlined in the recent budget.”
Since its initial announcement, several organizations have voiced apprehensions regarding the proposed increase in the inclusion rate. Concerns have been raised, particularly by some within the medical community, who argue that the tax adjustment may impede efforts to recruit and retain physicians.
The Canadian Medical Association (CMA) has underscored the potential impact on doctors, noting that they often structure their medical practices through corporations, using them as a vehicle for retirement investments. This comes at a time when Canada is grappling with a significant shortage of physicians, with an estimated 6.5 million Canadians lacking access to primary care due to retiring family physicians and challenges in recruiting replacements.
Despite appeals from the CMA for an exemption, Prime Minister Justin Trudeau declined the request. Finance Minister Chrystia Freeland addressed concerns regarding doctors’ utilization of corporate structures for income, framing it as a tax advantage not accessible to many Canadians. She projected that the capital gains adjustment would yield approximately $12 billion in additional revenue for provinces and territories.
Meanwhile, a coalition of Canadian agricultural associations has urged the federal government to reconsider the capital gains tax revision, among other proposed measures. Additionally, the Canadian Federation of Independent Business reported that 72 percent of its members oppose the change, fearing its adverse impact on investment.
A capital gain refers to the profit realized from the sale of an asset, such as an investment property, stock, or mutual fund, calculated as the variance between its purchase cost and the selling price. Presently, only 50 percent of capital gains are subject to taxation.
Under the impending changes, the taxation scheme will adjust. Initially, 50 percent of the first $250,000 in capital gains earned by individual taxpayers will be taxable. Beyond this threshold, two-thirds of each additional dollar over $250,000 will become subject to taxation.
Furthermore, the budget proposes extending this two-thirds tax rate to all capital gains accrued by corporations and trusts.
Although the legislation is still undergoing multiple stages before potential enactment, the revision to the inclusion rate is slated to come into effect on June 25.
