Moving ahead with raising Canada’s capital gains inclusion rate “sows division” and is a “shortsighted” way to improve the deficit, business groups warn Finance Minister Chrystia Freeland.
In a new letter sent to Canada’s chief financial officer and deputy prime minister, six of the country’s largest industry organizations express concern that the policy change will stifle economic growth and come at the expense of the prosperity of future generations.
“Simply put, this measure will limit opportunities for all generations and make Canada a less competitive and less innovative nation,” the letter reads.
“Whether through decreased new business and job creation, reduced availability of doctors, erosion of hard-earned pension returns… or the threat to the retirement plans of millions of Canadians who set their sights on the proceeds from the sale of a family home or a small business… the effects will spread from coast to coast.
The Canadian Chamber of Commerce, Canadian Federation of Independent Business, Canadian Manufacturers and Exporters, Canadian Private and Venture Capital Association, Canadian Franchise Association and Canadian Canola Growers Association are signatories.
The 2024 federal budget included a proposal to increase the capital gains inclusion rate from 50 percent to 67 percent for individuals who earn more than $250,000 in capital gains in a year, and for all corporations and trusts. .
Since the budget was released, Freeland and Prime Minister Justin Trudeau have faced opposition from savings-conscious doctors and entrepreneurial-minded businesspeople.
The Liberals have repeatedly defended their plan to target Canada’s highest earners, and in the process raise billions in additional revenue, as a fair way to help offset other major investments in housing and the social safety net. from Canada.
While the government has promised that this would affect about 12 per cent of Canada’s corporations and Canadians with an average income of $1.42 million, critics have warned that its impacts could be felt more widely by any individual who gets profits of $250,000 or more from the sale of assets such as secondary or rental properties.
In the initial letter sent, the groups called the government’s claim that increasing the inclusion rate to 67 per cent would only affect a small percentage of the wealthiest Canadians “misleading,” and stated that they believed “one of every five Canadians” will be directly affected over the next decade.
However, that figure, according to a 2023 Simon Fraser University study, refers to an estimate of how many people could be affected if the inclusion rate on all capital gains were increased.
As first reported by The Canadian Press, when asked about this figure, the The version of the letter posted online was changed. The text should read: “One in five Canadian businesses is likely to be directly affected over the next ten years.”
Last week, Freeland reaffirmed her intention to move forward on this tax change, opting to leave the necessary legal reforms out of the overall budget implementation bill. Instead, he plans to introduce separate legislation focused on this measure that will be approved by Parliament on its own timetable, forcing opposition parties to take a clear stance.
“We are very committed to capital gains measures,” Freeland said. “Our view is that it is absolutely fair to ask those in our country, who are at the top, to contribute a little more.”
On Thursday, Freeland’s office told CTV News that while it’s understandable that groups may have questions about new tax changes, when designing the parameters of this policy, it was done with Canadian productivity in mind.
Stating that the Finance Minister remains committed to the plan she has presented, the background speaker disputed concerns about hampering economic growth and noted that the Canadian government average effective marginal tax rate remains more advantageous for startups than tariffs in the US.
According to Finance Canada, in 2021 only about five per cent of Canadians under the age of 30 made any capital gains. And next year, 28.5 million Canadians are expected to have no capital gains income, while three million are expected to have capital gains below the $250,000 annual threshold.
While Freeland has not yet revealed the legislation, this tax change is expected to apply to capital gains realized on or after June 25, 2024.
Industry organizations are calling on the federal government to scrap the “reckless inclusion rate increase” before it takes effect. Instead, they want an independent review of Canada’s tax system as a whole.
“Under successive governments, our tax system has become a complicated web of exceptions and caveats. Our country must end its reliance on tax-and-spend policy, which is undermining innovation and growth to the detriment of both Canadians. of today and future generations,” the letter reads.
“As Canada’s economy grows, so does our tax base, all without the need for tax increases that will hurt Canadians and limit our collective potential… There is a better way. We are prepared to roll up our sleeves and work with you to help Canada get there.
In a separate letter sent Thursday morning, Business Council of Canada president and CEO Goldy Hyder echoed concerns raised by other business groups.
“Based on the information provided to date, we are concerned that the proposed changes will further undermine Canada’s ability to attract investment and talent,” Hyder said in his letter to Freeland.
“More importantly, we believe the debate over capital gains taxes overshadows an issue of even greater concern: that the government’s fiscal framework is unsustainable. No tax increases would be required if the government reduced its planned spending and took action proactive measures to stimulate growth, such as how to eliminate regulatory barriers.