Those with hundreds of thousands of dollars in assets to liquidate have two months to do so. As of June 25, capital gains will be taxed more to allow the Trudeau government to pay for its new measures.
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“I am confident that this measure will not have negative effects on the investment climate in the country,” Finance Minister Chrystia Freeland had to defend herself during the presentation of her budget on Tuesday afternoon.
Faced with the prospect of losing its perfect AAA rating, the Trudeau government brings out the bazooka. He wants to raise 20 billion over five years by increasing the inclusion rate for capital gains above $250,000.
Capital gain is the profit you receive when you resell something whose value has increased. More often than not, these are shares of publicly traded companies or a second home like a chalet. The sale of the main residence will remain tax-exempt.
The government projects that about 40,000 Canadians – 0.13% of the population – and 300,000 businesses – 12% of the total – will have capital gains income next year.
We might as well say that the measure only affects the ultra-rich. The 40,000 individuals targeted earn on average $1.4 million.
$2 billion for Quebec
The measure is bittersweet on the business side, because Ottawa will not only be picking from the pockets of multinationals, according to the Canadian Federation of Independent Business.
“Local SMEs that own larger assets, such as premises or land, will be disadvantaged and will have to pay more tax,” indicated the organization’s VP, Jasmin Guénette, in an interview with The newspaper.
Others are more direct in their criticism. “The government is desperate. He is trying to save his skin and get by by increasing taxes,” said Robert Asselin of the Business Council of Canada.
This is an “anti-productivity” budget which will harm investments in the country, he added. It could also hurt owners of old buildings that have gained a lot of value.
Tax expert Luc Godbout is not ready to go that far. “We are going to get as much money as possible from the pockets of large companies with this,” he said on Tuesday.
This is without taking into account, he emphasizes, that Quebec will not be asked to agree to harmonize its own rules. We are talking about an addition of 2 billion dollars per year to the coffers of the Quebec state.
What is the capital gains inclusion rate?
An Ontarian earns $400,000 per year and realizes a gain of $300,000 by selling his cottage. With the current inclusion rate of 50%, he must declare additional income of $150,000. As of June, he will have to pay tax on $158,333 of his gain, or $4,461 more.
Ottawa tackles productivity problem
The federal government is banking on artificial intelligence and research support to solve the country’s nagging productivity problem, but these investments would only be a necessary catch-up after years of lean times.
“We are redoubling our efforts to increase productivity,” said Finance Minister Chrystia Freeland during the presentation of her budget on Tuesday afternoon, as if in response to the Deputy Governor of the Bank of Canada, who emphasized in the last few days that it is “urgent” to tackle this issue.
In total, Ottawa will devote $5 billion over four years to try to resolve this problem, argued Ms. Freeland, who notably adds the $2.4 billion already announced for artificial intelligence, as well as the sums to support university research (825 million) and improve the “Scientific Research and Experimental Development” program ($600 million).
Concretely, this will result, among other things, in an increase in funding for higher education: federal master’s scholarships will increase from $17,500 to $27,000, and doctoral scholarships from $20,000 to $40,000.
The Trudeau government hopes to create a virtuous circle. Better scholarships must attract better researchers, and better researchers must “create innovation,” which will ultimately improve productivity, we were told.
“One step forward, two steps back”
“We’ve been waiting for this for a while,” responded Robert Asselin of the Business Council of Canada. “But it’s one step forward and two steps back, because of the increase in the capital gains inclusion rate.”
“In this way, we tell investors that we are going to take more in their pocket, and that means that the risk is greater for them to invest in the economy,” he continues.
During the presentation of her budget, Minister Freeland defended herself by saying that her government’s decision “will not have a negative impact” on the investment climate in the country, recalling in the same breath that Canada remains the G7 country with the lowest marginal tax rate.
Some loose measurements
There is little time left for those who want to take advantage of the $5,000 from the federal government to purchase an electric car. The Freeland budget provides $607.9 million for this year and next for the Incentive Program for the purchase of zero-emission vehicles. While in Quebec, the Roulez vert program will be dead and buried by 2027, in Ottawa, the mystery lingers. Everything indicates that there are two years left on the program, but it was impossible to confirm this yesterday.
The federal government wants to limit insufficient funds fees imposed by banks to $10. Banks will also have to warn their customers that their funds are insufficient Before so that the check does not bounce. These are fine words, but we will have to see: the measure should see the light of day “in the coming months”.
Mobile phone service providers are also in the federal government’s sights. They will soon no longer be able to charge fees to customers who leave them for another. Above all, companies will be required to help their customers find the package at the best price, even if the contract has not ended. They will also have to offer an online self-service portal that allows you to easily change plans.