The capital gains con job

All of the serious problems facing the Canadian economy will be worsened by this change in capital gains taxes. Pictured: Finance Minister Chrystia Freeland. Photo Credit: Chrystia Freeland/X.

Last week’s federal budget contained many elements that were negative for Canada – a massive deficit, growing national debt, debt service costs that are exceeding health-care expenses and a stagnant debt-to-GDP ratio. We also saw more spending on dubious programs and ambitious goals that anyone who has paid attention to this government knows will never be achieved by Liberal politicians who make big promises yet consistently fail to deliver. 

From the standpoint of the business community and anyone who understands tax policy, one of the most surprising and disturbing announcements was a significant increase in the so-called inclusion rate for capital gains tax from 50 per cent to 66.7 per cent on all capital gains for businesses and amounts over $250,000 of capital gains for individuals. 

Finance Minister Chrystia Freeland presented this change as a tax on the ultra-rich, who as usual are being asked to pay “a little bit more so they can contribute their fair share.” Whatever that fair share is deemed to be. Currently in most provinces, people making around $200,000 or so annually – not exactly Warren Buffett territory – are facing a personal income tax rate of over 50 per cent. 

One would think that giving about half of your earnings to government would be more than sufficient, especially considering how much virtually all our governments abuse our tax dollars and deliver poor quality public services, but this simply is not enough for Freeland. The famous US economist Thomas Sowell’s quote in this regard is appropriate. He said: “I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take someone else’s money.” 

As usual with these Liberals, however, the truth about the capital gains change is quite different than advertised and is anything but a tax on the ultra-rich. While many gullible and ill-informed Canadians reacted with delight that the rich would be punished further, a chorus of financial analysts, tax experts, businesses large and small and average Canadians have begun to speak out about the fact that many people who are anything but rich will be negatively affected by this change. It will also have a seriously negative impact on our economy, which is already struggling. 

The whole point behind having a less-than-100 per cent capital gains tax is to encourage people and businesses to take risks in their investments and in the process create businesses, employment and wealth for the entire economy. Such a significant hike in capital gains taxes as the Liberals propose will hit way more Canadians than the laughable 0.13 per cent they claimed in the budget. 

For starters, anyone with a second property is likely to be affected. About 10 per cent of Canadians are cottage/secondary residence owners. Many of these people plan to pass on their additional property to their children and are now likely to be taxed more as having a capital gain of over $250,000 will not be difficult in our inflated real estate market. Many Canadians who do not have the gold-plated pensions enjoyed by government employees – and paid for by the rest of us – have in the past purchased a second property as a means of funding their retirement. They will also be hit hard by this tax change. 

Tech companies, which we would like to have more of in Canada, have already expressed their major disappointment in this change. Many start-up companies offer stock options instead of salary, encouraging employees to work toward the success of the new business so they can eventually benefit from the sale of those shares. And yes, these businesses will be hit hard as well since stocks are subject to capital gains taxes. 

We’ve also heard from professionals such as doctors, engineers, accountants and others that this change will affect their incomes. These professions are frequently registered as corporations and will see their tax burden increase. At a time when we badly need more doctors and other professionals to improve our provision of health care to Canadians and boost our economic growth, this is a very bad time to introduce such a tax change. 

All of the serious problems facing the Canadian economy – severe housing shortages, inflation, lagging productivity, a lack of sufficient health care, poor investment climate and a declining standard of living – will be worsened by this change in capital gains taxes. The claim by the Liberals that less than one per cent of Canadians will be affected by this is a bald-faced lie. This change also represents retroactive taxation. In other words, changing the tax treatment of decisions that were made long ago by Canadians. That is inexcusable and should be illegal. 

Back in 1982, Liberal Finance Minister Allan MacEachen introduce a disastrous federal budget that had measures similar to this Freeland budget. Not coincidentally, the MacEachen budget happened under another Trudeau. That terrible 1982 budget was withdrawn as the opposition to it was so strong and justified, and eventually replaced by a more moderate one. One can only hope for the future of our Canadian economy that this most recent bad budget will meet the same fate.


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