Chrystia Freeland presented her promised capital gains proposal to Parliament on Monday, setting the stage for a key vote as the Liberals try to wedge the Conservatives on the contentious tax proposal. Though whats known as a Notice of Ways and Means Motion, the deputy prime minister and finance minister has given her colleagues in the House of Commons a heads up that theyll soon have to weigh in on the plan to increase Canadas capital gains inclusion rate.
Its expected MPs will be asked to approve this motion — which contains the legislative details of the coming tax changes that will result in raking in billions in new federal revenue — on Tuesday. Freeland deliberately opted to leave this measure out of the bigger budget implementation bill, and instead move it through Parliament on its own timeline. While defending this path as nothing out of the ordinary, Freeland said taking a separate vote on this significant of a political decision is appropriate. We do you think this is an important time for our country. Its an important time because we need investments, and its an important time for us all to take a stand on how we feel those investments should be financed… I do think this is a moment when Canadians should be watching closely what happens in the House and watching closely to see how all MPs vote on this, Freeland said. Though, by doing so the government is also forcing Conservative Leader Pierre Poilievres caucus to take a clear stance on whether they support making the wealthiest Canadians and businesses pay more. Its an effort to pin down their main opponents on a key cost-of-living topic. Asked Monday if his party was ready to make its position clear, a Poilievre spokesperson said the Conservatives needed more time. Conservatives will study the motion very carefully before determining next steps, said Sam Lilly in a statement to CTV News, citing the procedural chaos and delay around legislating on this measure. According to Finance Canada, the associated draft legislation wont be released until July, meaning that with a more than two-month summer parliamentary hiatus, itll be fall before the bill starts moving. The government has already indicated that regardless of when the law actually changes, the incoming new rules will apply to capital gains realized on or after June 25, 2024. The Trudeau government is scrambling and making things up on the fly…This is a tax on health care, homebuilding, small businesses, farmers, and peoples retirements, Lilley said. The NDP backed the Liberals on their budget – per the terms of their two-party pact – and citing his partys support for making Canadas wealthiest pay more, NDP Leader Jagmeet Singh said his party will support this move too. But, he was quick to criticize the Liberals for playing politics with the decision to pull this proposal out of the main bill. The Liberals could have done this a long time ago. The fact that theyre not only moving forward on this, but then separating it out of the budget to make it a wedge issue for the Conservatives, just highlights that they want to make this a political point while for us this is about justice and fairness, Singh said. What is the capital gains tax change?After heavy speculation about a wealth tax, the 2024 federal budget included a more targeted proposal to increase the capital gains inclusion rate — the portion of capital gains on which tax is paid – for top earners. Specifically, the Liberals intent to hike the inclusion rate on capital gains from 50 per cent to 67 per cent for individuals earning more than $250,000 in capital gains in a year, and on all capital gains realized by corporations and most types of trusts. That means that people with more than $250,000 in profit made in a year on the sale of assets or investments – including stocks and secondary properties – will have to pay taxes on a larger portion of that money. This change is expected to return up to $19.4 billion to federal coffers over five years. This incoming amendment to the Income Tax Act is expected to affect the wealthiest 0.13 per cent, and approximately 12 per cent of Canadas corporations and Canadians with an average income of $1.42 million. The inclusion rate for capital gains realized annually up to $250,000 is not changing, the existing capital gains exemption on primary residences will remain, and the lifetime exemption limit for small business shares, as well as farming and fishing properties is increasing. Tax move short-sighted opponents sayIn recent weeks, doctors worried about their savings and start-up-minded entrepreneurs have raised concerns over the impact of the tax reforms, with some business groups calling the move a short-sighted way to improve the deficit. Industry organizations have called on the federal government to scrap the ill-advised inclusion rate increase and instead have said an independent review of Canadas tax system as a whole would be a better way to ensure tax fairness. Those opposed have argued the policy change will stifle economic growth and come at the expense of future generations prosperity, while Freelands office has countered by noting that Canadas average marginal effective tax rate remains more advantageous to new businesses than rates in the U.S. According to Finance Canada, in 2021, only around five per cent of Canadians under 30 had any capital gains at all. Next year, 28.5 million Canadians are not expected to have any capital gains income, while three million are expected to earn capital gains below the $250,000 annual per-person threshold. Though, some have cast doubt on the Liberals assertions that this move will not be more widely felt. For example, Canadas Parliamentary Budget Officer Yves Giroux noted that in the current housing market, it is not unusual to see capital gains realized well in excess of $250,000 on the sale of rental properties or cottages. Helping pay for key supports, Liberals sayFacing these headwinds on their marquee revenue stream from the 2024 budget, the Liberals have repeatedly defended their plan to target Canadas highest earners as a fair way to help offset other major investments in housing and Canadas social safety net. On Sunday, in setting up this weeks parliamentary action on the measure, Freeland emphasised how this proposal is helping the government pay for major housing investments and programs such as pharmacare and childcare, efforts theyve advanced with the aim of targeting Millennial and Gen Z voters. I have heard from some Canadians who are concerned. No one likes paying more tax, even those who can afford it the most. And to those Canadians I want to say we applaud your hard work and your success... And we want more Canadians to enjoy success as you do, and to contribute as you are… But I would also like to ask Canadas one per cent, in fact, Canadas 0.13 per cent to consider this: What kind of a Canada do you want to live in? Freeland said. Do you want to live in a country where a teenage girl gets pregnant just because she doesnt have the money to buy birth control? … Do you want to live in a country where we make the investments we need… but we lack the political will to pay for them, and choose instead to pass a ballooning debt on to our children?
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