The Canadian federal government has taken an audacious step. They’ll instead adopt a much less progressive capital gains tax, one that more closely resembles a flat tax. The Prime Minister’s Office later doubled down on this unfortunate decision. It’s a welcome development, representing a big step back from the original position, which was to raise the inclusion rate on capital gains. The changes we’ve identified would increase tax revenues by an estimated $19.4 billion in the first five years. This revenue will be a fundamental pillar of the government’s 2024 federal budget.
Under the original blueprint, lawmakers would raise the capital gains tax rate. This would have a disproportionate impact on small businesses and individuals with more than $250,000 in gains per year. Of course, the Canada Revenue Agency had previously been set to enforce these changes, as the precedent establishing this long-standing tradition. Yet even with this strong climate connection, the proposal faced fierce opposition. After tech leaders and progressive professional groups raised alarms, legislators chose not to move forward with the bill.
In January, then-finance minister Dominic LeBlanc admitted that they would delay the measure. He went on to answer the overwhelming criticism and trepidation aimed at the rule and its expected influence on the economy. The introduction of these changes by the Liberals was central to their victory in last year’s federal budget. They never put any teeth into the actual passed legislation.
Rather than increasing the capital gains tax, government has opted to do what? This would raise the lifetime capital gains exemption on shares of small businesses and on farming & fishing related equipment from $1 million to $1.25 million. This repeal and replace move will take new legislation in the wake of the November election. This decision is a big strategic change. It is intended to help increase supports for small business owners, and industries that are key to Canada’s economy, such as agriculture and seafood.
