A controversial increase to the capital gains inclusion rate is now in effect despite strong pushback from small businesses, farmers and medical professionals.
Starting Tuesday, individuals with capital gains of more than $250,000 will be subject to an inclusion rate of 67 per cent, up from 50 per cent before. For corporations, all capital gains are now subject to the two-thirds inclusion rate.
The federal government says the move will improve tax fairness and increase federal revenues by $19.4 billion over five years, with a bulk of that money flowing into federal coffers this year. Budget 2024 shows the change to the inclusion rate will bring in an estimated $6.9 billion dollars this fiscal year.
The tax change applies to profits made from the sale of secondary properties or investments, including stocks or bonds and family cottages. The new inclusion rate does not change the tax rate itself, which will continue to be an individual or corporation’s marginal rate, but increases the taxable portion of that gain.
“Do you want to live in a country where we make the investments we need — in health care, in housing, in old age pensions — but we lack the political will to pay for them, and choose instead to pass a ballooning debt onto our children?” Finance Minister and Deputy Prime Minister Chrystia Freeland asked in Toronto earlier this month.
EY Canada tax policy leader Fred O’Riordan says the government appears to be using this tax change to keep the federal deficit below $40 billion.
“Instead of doing (it) immediately effective Budget Day, which is why most of them are done, they gave that window of time a couple of months until June 25,” O’Riordan said. “A lot of us believe that the main reason they did that was to encourage people to crystallize, to realize capital gains earlier than they might otherwise and then bring additional tax revenue into this fiscal year.”
Law firms and other corporations who regularly handle capital gains say that since the measures were announced in Budget 2024, clients have rushed to realize their gains before the changes took effect on June 25.
“I have heard from some Canadians who are concerned,” Freeland said in Toronto earlier this month. “No one likes paying more tax, even those who can afford it the most.”
But while the Liberals contend this increase will only impact 0.13 per cent of Canadians with capital gains income, an array of groups from small businesses to medical professional and farmers have called for immediate changes.
“Politically speaking, you would think there would be some room for manoeuvring, but they haven’t budged at all and you’ve got to think that it’s because they really want the revenue,” O’Riordan said.
Details about the change were included in what is called a “Notice of Ways and Means Motion” that was approved by the House before it rose in June. The legislative details of the tax change are expected to be released later this summer, with the bill itself voted on when Parliament returns in the fall.
Although the change is now in effect, O’Riordan believes the government still has time to make carve-outs.
“They really painted themselves in a corner but who knows,” he said. “There’s still wiggle room there if they want to change their mind.”
Farmers say increase ‘targets’ them
Last week, a survey released by the Canadian Federation of Independent Business (CFIB) found that half of all small-business owners in Canada will be affected by the change and another 45 per cent said the tax would affect the investments they hold privately.
One of the loudest groups of small businesses pushing the federal government to reverse course are farmers who say family-owned farms across Canada will be negatively affected.
Günter Jochum’s family owns and operates a wheat farm just outside Winnipeg and calls the change “appalling,” He says the increase will make it harder to transfer the family farm to his daughter, Fiona, when she’s ready to take over.
While farmers do have to pay capital gains on the profits from the sale of their farmland, a portion of the property considered by the Canada Revenue Agency to be a primary residence is excluded.
“My parents are still drawing from the farm. I myself draw from the farm,” he said. “These changes will just mean that there is more of a tax burden now and it will make it more difficult for my daughter to maintain the farm and be able to satisfy all three households.”
Jochum, who is also president of the Wheat Growers Association, said the tax change makes farming less attractive and could result in more farms being sold outright instead of passed on to the next generation.
“I get what they’re trying to do; they’re trying to hit the really big corporations who make multibillion dollars,” Jochum said. “That’s not farmers who are small businesses, and we somehow get lumped into that and that is very dangerous.”
The government recently increased the Lifetime Capital Gains Exemption (LCGE) that allows tax-free capital gains up to a new $1.25 million on the sale of a qualified property. Prior to June 25, the LCGE limit for small business shares, farms and fishing properties was $1.016 million.
While that cumulative lifetime exemption is helpful, Jochum argues it is simply not enough. Jochum says his accountant advised him that despite programs like the LCGE meant to help farmers, he should expect to pay about 30 per cent more on the eventual sale of his farm.
“You want to stick everything into your business to build it up and take it to where it is today,” Jochum said, adding he has chosen to invest in his farm rather than into an RRSP. “For the government to come along and tap into my retirement, and say, ‘Yeah, we want to tax your retirement 30 per cent more,’ is really offensive.”
Doctors ‘disappointed’ with tax hike
Medical professionals have also joined the chorus of voices calling for change. Most family doctors are considered corporations for tax purposes and will now be subject to the higher inclusion rate.
Canadian Medical Association president Dr. Joss Reimer says she is “disappointed” the government made no exceptions for family doctors. Unlike individuals, the higher inclusion rate affects all capital gains earned by corporations. Reimer fears that difference will impact the bottom line of many family practices and could make physicians less likely to enter or stay in family practice.
“We know that there are so many Canadians who already don’t have access to a health-care provider,” she said. “Anything that’s going to cause any of our physicians to consider not doing family medicine or to decrease their hours is really concerning.”
Reimer says she is hopeful the government will engage in conversations with members of the medical community over the summer. One solution, she says, is allowing family physicians to use their personal $250,000 annual exemption for their corporation.
“Then we would still be taxed just like everybody else, but it treats us more like the individuals that we are,” she said. “We’re not the same as the big companies who have their shareholders … We’re just trying to save for our retirements, from maternity leave or sick leave, all of those things that physicians aren’t usually eligible to get.”
New measures for entrepreneurs
The government’s ways and means motion also includes a new Canadian Entrepreneurs’ Incentive that was promised in the spring budget.
This measure will reduce the inclusion rate to 33 per cent on a lifetime maximum of $2 million on eligible capital gains. The limit will start with $200,000 in 2025 and increase by that amount every year until it reaches the $2-million threshold in 2034.
Entrepreneurs may also use the total lifetime capital gains exemption of $1.25 million, resulting in a combined exemption of at least $3.25 million.
What is not changing
The measures coming into effect today will not impact capital gains on tax-sheltered savings that are currently exempt.
This includes:
Capital gains from selling a principal residence
Income earned in tax-sheltered savings accounts, like tax-free savings accounts (TFSA), First Home Savings Account (FHSA), registered retirement savings plan (RRSP) or registered education savings plan (RESP)
Pension income or capital gains earned by registered pension plans
The first $250,000 earned in capital gains will continue to be subject to the 50 per cent inclusion rate for individuals.
NEW YORK (AP) — Teen smoking hit an all-time low in the U.S. this year, part of a big drop in the youth use of tobacco overall, the government reported Thursday.
There was a 20% drop in the estimated number of middle and high school students who recently used at least one tobacco product, including cigarettes, electronic cigarettes, nicotine pouches and hookahs. The number went from 2.8 million last year to 2.25 million this year — the lowest since the Centers for Disease Control and Prevention’s key survey began in 1999.
“Reaching a 25-year low for youth tobacco product use is an extraordinary milestone for public health,” said Deirdre Lawrence Kittner, director of CDC’s Office on Smoking and Health, in a statement. However, “our mission is far from complete.”
A previously reported drop in vaping largely explains the overall decline in tobacco use from 10% to about 8% of students, health officials said.
The youth e-cigarette rate fell to under 6% this year, down from 7.7% last year — the lowest at any point in the last decade. E-cigarettes are the most commonly used tobacco products among teens, followed by nicotine pouches.
Use of other products has been dropping, too.
Twenty-five years ago, nearly 30% of high school students smoked. This year, it was just 1.7%, down from the 1.9%. That one-year decline is so small it is not considered statistically significant, but marks the lowest since the survey began 25 years ago. The middle school rate also is at its lowest mark.
Recent use of hookahs also dropped, from 1.1% to 0.7%.
The results come from an annual CDC survey, which included nearly 30,000 middle and high school students at 283 schools. The response rate this year was about 33%.
Officials attribute the declines to a number of measures, ranging from price increases and public health education campaigns to age restrictions and more aggressive enforcement against retailers and manufacturers selling products to kids.
Among high school students, use of any tobacco product dropped to 10%, from nearly 13% and e-cigarette use dipped under 8%, from 10%. But there was no change reported for middle school students, who less commonly vape or smoke or use other products,
Current use of tobacco fell among girls and Hispanic students, but rose among American Indian or Alaska Native students. And current use of nicotine pouches increased among white kids.
___
The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Science and Educational Media Group. The AP is solely responsible for all content.
WASHINGTON (AP) — An Alabama man was arrested Thursday for his alleged role in the January hack of a U.S. Securities and Exchange Commission social media account that led the price of bitcoin to spike, the Justice Department said.
Eric Council Jr., 25, of Athens, is accused of helping to break into the SEC’s account on X, formerly known as Twitter, allowing the hackers to prematurely announce the approval of long-awaited bitcoin exchange-traded funds.
The price of bitcoin briefly spiked more than $1,000 after the post claimed “The SEC grants approval for #Bitcoin ETFs for listing on all registered national securities exchanges.”
But soon after the initial post appeared, SEC Chairman Gary Gensler said on his personal account that the SEC’s account was compromised. “The SEC has not approved the listing and trading of spot bitcoin exchange-traded products,” Gensler wrote, calling the post unauthorized without providing further explanation.
Authorities say Council carried out what’s known as a “SIM swap,” using a fake ID to impersonate someone with access to the SEC’s X account and convince a cellphone store to give him a SIM card linked to the person’s phone. Council was able to take over the person’s cellphone number and get access codes to the SEC’s X account, which he shared with others who broke into the account and sent the post, the Justice Department says.
Prosecutors say after Council returned the iPhone he used for the SIM swap, his online searches included: “What are the signs that you are under investigation by law enforcement or the FBI even if you have not been contacted by them.”
An email seeking comment was sent Thursday to an attorney for Council, who is charged in Washington’s federal court with conspiracy to commit aggravated identity theft and access device fraud.
The price of bitcoin swung from about $46,730 to just below $48,000 after the unauthorized post hit on Jan. 9 and then dropped to around $45,200 after the SEC’s denial. The SEC officially approved the first exchange-traded funds that hold bitcoin the following day.
Google, Meta and TikTok have removed social media accounts belonging to an industrial plant in Russia’s Tatarstan region aimed at recruiting young foreign women to make drones for Moscow’s war in Ukraine.
Posts on YouTube, Facebook, Instagram and TikTok were taken down following an investigation by The Associated Press published Oct. 10 that detailed working conditions in the drone factory in the Alabuga Special Economic Zone, which is under U.S. and British sanctions.
Videos and other posts on the social media platforms promised the young women, who are largely from Africa, a free plane ticket to Russia and a salary of more than $500 a month following their recruitment via the program called “Alabuga Start.”
But instead of a work-study program in areas like hospitality and catering, some of them said they learned only arriving in the Tatarstan region that they would be toiling in a factory to make weapons of war, assembling thousands of Iranian-designed attack drones to be launched into Ukraine.
In interviews with AP, some of the women who worked in the complex complained of long hours under constant surveillance, of broken promises about wages and areas of study, and of working with caustic chemicals that left their skin pockmarked and itching. AP did not identify them by name or nationality out of concern for their safety.
The tech companies also removed accounts for Alabuga Polytechnic, a vocational boarding school for Russians aged 16-18 and Central Asians aged 18-22 that bills its graduates as experts in drone production.
The accounts collectively had at least 158,344 followers while one page on TikTok had more than a million likes.
In a statement, YouTube said its parent company Google is committed to sanctions and trade compliance and “after review and consistent with our policies, we terminated channels associated with Alabuga Special Economic Zone.”
Meta said it removed accounts on Facebook and Instagram that “violate our policies.” The company said it was committed to complying with sanctions laws and said it recognized that human exploitation is a serious problem which required a multifaceted approach, including at Meta.
It said it had teams dedicated to anti-trafficking efforts and aimed to remove those seeking to abuse its platforms.
TikTok said it removed videos and accounts which violated its community guidelines, which state it does not allow content that is used for the recruitment of victims, coordination of their transport, and their exploitation using force, fraud, coercion, or deception.
The women aged 18-22 were recruited to fill an urgent labor shortage in wartime Russia. They are from places like Uganda, Rwanda, Kenya, South Sudan, Sierra Leone and Nigeria, as well as the South Asian country of Sri Lanka. The drive also is expanding to elsewhere in Asia as well as Latin America.
Accounts affiliated to Alabuga with tens of thousands of followers are still accessible on Telegram, which did not reply to a request for comment. The plant’s management also did not respond to AP.
The Alabuga Start recruiting drive used a robust social media campaign of slickly edited videos with upbeat music that show African women smiling while cleaning floors, wearing hard hats while directing cranes, and donning protective equipment to apply paint or chemicals.
Videos also showed them enjoying Tatarstan’s cultural sites or playing sports. None of the videos made it clear the women would be working in a drone manufacturing complex.
Online, Alabuga promoted visits to the industrial area by foreign dignitaries, including some from Brazil, Sri Lanka and Burkina Faso.
In a since-deleted Instagram post, a Turkish diplomat who visited the plant had compared Alabuga Polytechnic to colleges in Turkey and pronounced it “much more developed and high-tech.”
According to Russian investigative outlets Protokol and Razvorot, some pupils at Alabuga Polytechnic are as young as 15 and have complained of poor working conditions.
Videos previously on the platforms showed the vocational school students in team-building exercises such as “military-patriotic” paintball matches and recreating historic Soviet battles while wearing camouflage.
Last month, Alabuga Start said on Telegram its “audience has grown significantly!”
That could be due to its hiring of influencers, who promoted the site on TikTok and Instagram as an easy way for young women to make money after leaving school.
TikTok removed two videos promoting Alabuga after publication of the AP investigation.
Experts told AP that about 90% of the women recruited via the Alabuga Start program work in drone manufacturing.
