In the fall of 2021, the editors of the Canadian Tax Journal devoted several dozen pages to the “hotly debated” topic of capital gains.
On balance, the editors wrote, their selected contributors were in favour of raising the inclusion rate for capital gains — the share of an individual’s capital gains that are subject to income tax rates. But they acknowledged that putting such a change into practice would not be easy.
“Opposition to capital gains tax increases among affected taxpayers is apt to be vociferous,” Michael Smart and Sobia Hasan Jafry wrote in one of the featured papers, “precisely because such a reform would act like a lump sum tax that would be difficult or impossible for taxpayers to avoid in the long run by changing their behaviour.”
Whatever its exact causes or motivations, “vociferous” opposition to tax hikes may be as old as taxation itself. But the Liberals already have firsthand experience of how loud that opposition can get, having watched one set of reforms struggle to survive an onslaught of confusion and controversy in the summer of 2017.
Now they’re taking another swing at it — and one big question is whether they’re better prepared for the blowback this time.
WATCH: The capital gains tax changes, explained
Breaking down the capital gains tax changes
5 days ago
Duration 4:49
The federal government unveiled billions in spending in its 2024 budget, and to help pay for it all, it’s proposing changes to how capital gains are taxed. CBC’s Nisha Patel breaks down how it works and who will be affected.
If the Liberals are hoping to look reasonable and measured, they can at least point to the fact that they haven’t gone nearly as far as some wanted them to go.
In their 2001 paper, Smart and Hasan Jafry proposed increasing the inclusion rate from 50 per cent to 80 per cent for all capital gains. In her third budget, tabled last week, Finance Minister Chrystia Freeland proposed an inclusion rate of 67 per cent for capital gains of $250,000 or more.
In their 2021 analysis, Smart and Hasan Jafry pointed out that the wealthiest families benefited disproportionately from the preferential tax treatment afforded to capital gains (though there is some debate over exactly how disproportionately the benefits are distributed). That’s now a key aspect of the government’s argument.
“The government is asking the wealthiest Canadians to pay their fair share,” last week’s budget document said, adding that only about 0.13 per cent of Canadians would be affected by the change.
As Freeland noted, her changes also aren’t unprecedented. From 1990 to 2000, the inclusion rate was 75 per cent for all capital gains. Freeland is also promising a special carve-out aimed at entrepreneurs.
“There are a lot of reasons why the inclusion rate should go up for capital gains,” Smart said in an interview this week.
For one thing, Smart argues, “it’s fairer for all Canadians if taxpayers with capital gains pay the same rates of tax as the rest of us do right now.” Also, he says, “it’s better for the economy if every investor is paying the same tax rate on everything she or he invests in,” pointing to differences in the way dividends and capital gains are taxed.
The fight over what these changes will mean
While condemning the budget, Pierre Poilievre’s Conservatives have been noticeably quiet on the issue of capital gains. That might be because they sense — correctly — that the Liberals would be happy to accuse them of supporting tax breaks for the rich.
For the time being, other voices are filling the void — including doctors, who came forward with their own concerns this week. The technology sector has been the loudest in its objections. The Council of Canadian Investors has sponsored an open letter that has now been signed by hundreds of tech executives.
WATCH: CMA president slams changes to capital gains tax
CMA president ‘deeply concerned’ about capital gains tax change
2 days ago
Duration 9:00
Canadian Medical Association president Dr. Kathleen Ross tells Power & Politics that she fears changes to the capital gains tax will make recruitment and retention of physicians more difficult at ‘a time where the health force is beleaguered, mothballed and really struggling to deliver on services to Canadians.’
In an op-ed for the National Post, the council’s president, Benjamin Bergen, warned that the changes would hurt Canada’s economic “vibes.” Specifically, he argued that a higher inclusion rate would discourage business investment.
“Capital gains are taxed at a different rate because they are taxes on investment,” he wrote. “Every investment comes with risk … [t]he tax code takes this into account.”
But other figures in the investment community have come forward to say the backlash is confused and unwarranted.
There does not seem to be a clear consensus on the economic impact of changes to the capital gains tax. In a paper published last year, the economist Jonathan Rhys Kesselman wrote that “the overall impact of existing and increased capital gains taxes on the economy’s efficiency and growth are mixed and not easily quantified.”
“When the gains inclusion rate was raised to 75 per cent in 1990 for nearly a decade, adverse economic impacts were not observed, though this is at best weak evidence,” Kesselman wrote. “Contrary to common claims about higher taxes on gains, some impacts would be economically favourable, and others that might be adverse could be mitigated through appropriate concomitant reforms.”
LISTEN: Tech entrepreneurs break down federal budget’s impacts on their sector
All in a Day13:14Three tech entrepreneurs break down impact of federal budget on their sector
Ottawa tech pros want the federal government to reconsider capital gains changes that, they say, can scare investors and jeopardise business.
It might be fair to assume the change will have some downside. But every policy choice involves a trade-off.
In an email this week, University of Calgary economist Trevor Tombe — who argues it makes sense to hike taxes on capital gains — wrote that while it would not be controversial to suggest the capital gains changes will have some kind of negative effect, “all policy choices come with costs and benefits, so we also have to then compare the costs to the benefits of the government’s spending choices.”
What the Liberals might have learned from 2017
Compared to the tax fight of 2017 — when the Liberals sought to change the rules on private incorporation — the government has been far more explicit and purposeful this time about connecting the tax changes to new spending proposals, particularly those related to ensuring that younger Canadians can find affordable places to live.
“I understand for some people this might cost more if they sell a cottage or a secondary residence, but young people can’t buy their primary residences yet,” Prime Minister Justin Trudeau said Tuesday.
In total, the changes are projected to produce $19.4 billion in additional revenue for the federal government over five years. In her budget speech, Freeland connected asking wealthy Canadians to pay more with federal programs to provide dental care, school lunches and free contraception.
The goal of reducing income inequality might be worthy in and of itself, but it’s more abstract than the tangible things the Liberals are pointing to now.
An internal review conducted by the Finance Department after the tax storm of 2017 concluded that the government had been slow to respond to concerns and criticism and that there was a “need to more rapidly adjust communications strategies and messaging to effectively address misconceptions.” Scott Clark, a former senior finance official, observed at the time that there were no “winners” — people who would benefit from the changes — to whom the federal government could point.
The early returns might suggest the government learned some things from the 2017 experience. For one thing, Freeland openly acknowledged from the outset that some people were likely going to be upset.
But if 2017 is any guide, the opposition is unlikely to pass quickly or quietly.
VANCOUVER – Predictions of a close election were holding true in British Columbia on Saturday, with early returns showing the New Democrats and the B.C. Conservatives locked in a tight battle.
Both NDP Leader David Eby and Conservative Leader John Rustad retained their seats, while Green Leader Sonia Furstenau lost to the NDP’s Grace Lore after switching ridings to Victoria-Beacon Hill.
However, the Greens retained their place in the legislature after Rob Botterell won in Saanich North and the Islands, previously occupied by party colleague Adam Olsen, who did not seek re-election.
It was a rain-drenched election day in much of the province.
Voters braved high winds and torrential downpours brought by an atmospheric river weather system that forced closures of several polling stations due to power outages.
Residents faced a choice for the next government that would have seemed unthinkable just a few months ago, between the incumbent New Democrats led by Eby and Rustad’s B.C. Conservatives, who received less than two per cent of the vote last election
Among the winners were the NDP’s Housing Minister Ravi Kahlon in Delta North and Attorney General Niki Sharma in Vancouver-Hastings, as well as the Conservatives Bruce Banman in Abbotsford South and Brent Chapman in Surrey South.
Chapman had been heavily criticized during the campaign for an old social media post that called Palestinian children “inbred” and “time bombs.”
Results came in quickly, as promised by Elections BC, with electronic vote tabulation being used provincewide for the first time.
The election authority expected the count would be “substantially complete” by 9 p.m., one hour after the close of polls.
Six new seats have been added since the last provincial election, and to win a majority, a party must secure 47 seats in the 93-seat legislature.
There had already been a big turnout before election day on Saturday, with more than a million advance votes cast, representing more than 28 per cent of valid voters and smashing the previous record for early polling.
The wild weather on election day was appropriate for such a tumultuous campaign.
Once considered a fringe player in provincial politics, the B.C. Conservatives stand on the brink of forming government or becoming the official Opposition.
Rustad’s unlikely rise came after he was thrown out of the Opposition, then known as the BC Liberals, joined the Conservatives as leader, and steered them to a level of popularity that led to the collapse of his old party, now called BC United — all in just two years.
Rustad shared a photo on social media Saturday showing himself smiling and walking with his wife at a voting station, with a message saying, “This is the first time Kim and I have voted for the Conservative Party of BC!”
Eby, who voted earlier in the week, posted a message on social media Saturday telling voters to “grab an umbrella and stay safe.”
Two voting sites in Cariboo-Chilcotin in the B.C. Interior and one in Maple Ridge in the Lower Mainland were closed due to power cuts, Elections BC said, while several sites in Kamloops, Langley and Port Moody, as well as on Hornby, Denman and Mayne islands, were temporarily shut but reopened by mid-afternoon.
Some former BC United MLAs running as Independents were defeated, with Karin Kirkpatrick, Dan Davies, Coralee Oakes and Tom Shypitka all losing to Conservatives.
Kirkpatrick had said in a statement before the results came in that her campaign had been in touch with Elections BC about the risk of weather-related disruptions, and was told that voting tabulation machines have battery power for four hours in the event of an outage.
— With files from Brenna Owen
This report by The Canadian Press was first published Oct. 19, 2024.
Rustad was kicked out of the Opposition BC United Party for his support on social media of an outspoken climate change critic in 2022, and last year was acclaimed as the B.C. Conservative leader.
Buoyed by the BC United party suspending its campaign, and the popularity of Pierre Poilievre’s federal Conservatives, Rustad led his party into contention in the provincial election.
VANCOUVER – Predictions of a close election were holding true in British Columbia on Saturday, with early returns showing the New Democrats and the B.C. Conservatives neck and neck.
Conservative Leader John Rustad was elected in Nechako Lakes, and 20 minutes after polls closed, his party was elected or leading in 46 ridings, with the NDP elected or leading in 45.
Among the early winners were the NDP’s Ravi Kahlon in Delta North and Niki Sharma in Vancouver-Hastings, as well as the Conservatives’ Bruce Banman in Abbotsford South.
It was a rain-drenched election day in much of the province.
Voters braved high winds and torrential downpours brought by an atmospheric river weather system that forced closures of several polling stations due to power outages.
Residents faced a choice for the next government that would have seemed unthinkable just a few months ago, between the incumbent New Democrats led by David Eby and Rustad’s B.C. Conservatives, who received less than two per cent of the vote last election
Green Leader Sonia Furstenau has acknowledged her party won’t win, but she’s hoping to retain a presence in the legislature, where the party currently has two members.
Elections BC has said results are expected quickly, with electronic vote tabulation being used provincewide for the first time.
The election authority expected most votes to be counted by about 8:30 p.m., and that the count would be “substantially complete” within another half-hour.
Six new seats have been added since the last provincial election, and to win a majority, a party must secure 47 seats in the 93-seat legislature.
There had already been a big turnout before election day on Saturday, with more than a million advance votes cast, representing more than 28 per cent of valid voters and smashing the previous record for early polling.
The wild weather on election day was appropriate for such a tumultuous campaign.
Once considered a fringe player in provincial politics, the B.C. Conservatives stand on the brink of forming government or becoming the official Opposition.
Rustad’s unlikely rise came after he was thrown out of the Opposition, then known as the BC Liberals, joined the Conservatives as leader, and steered them to a level of popularity that led to the collapse of his old party, now called BC United — all in just two years.
Rustad shared a photo on social media Saturday showing himself smiling and walking with his wife at a voting station, with a message saying, “This is the first time Kim and I have voted for the Conservative Party of BC!”
Eby, who voted earlier in the week, posted a message on social media Saturday telling voters to “grab an umbrella and stay safe.”
Two voting sites in Cariboo-Chilcotin in the B.C. Interior and one in Maple Ridge in the Lower Mainland were closed due to power cuts, Elections BC said, while several sites in Kamloops, Langley and Port Moody, as well as on Hornby, Denman and Mayne islands, were temporarily shut but reopened by mid-afternoon.
Karin Kirkpatrick, who is running for re-election as an Independent in West Vancouver-Capilano, said in a statement that her campaign had been in touch with Elections BC about the risk of weather-related disruptions, and was told that voting tabulation machines have battery power for four hours in the event of an outage.
West Vancouver was one of the hardest hit areas for flooding, and Kirkpatrick later said on social media that her campaign had been told that voters who couldn’t get to a location to cast their ballot because of the extreme weather could vote through Elections BC by phone.
— With files from Brenna Owen
This report by The Canadian Press was first published Oct. 19, 2024.
