Capital Gains Changes: 89% of Pros Disagree

Almost 90% of tax and financial advisors who responded to our May poll say they don’t agree with the proposed capital gains increase on or after June 25, 2024. Advisors have an important role to play in ensuring that the June 25 trigger date for the higher inclusion rates will not unduly upset retirement and estate plans. Knowledge Bureau’s Advanced Retirement & Estate Planning Course, featuring session recordings from expert instructors on May 22 (available today) will help bring you up to speed on the latest issues affecting your clients. Here’s what advisors said:

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The question:  “Do you agree with the proposed increase on capital gains inclusion rates to 66 2/3% on capital gains over $250,000 for individuals and all capital gains on corporations and trusts on or after June 25, 2024?”

The Results:  11.03% said yes; 88.97% said no.

FOR THE YES SIDE:

David Stefan Dalton points to taxes and inflation as key culprits in the fortunes of young people: “The gap between the economic fortunes of those who are economically disadvantaged vs those of means has increased monumentally over the last 30 years.  We could massage the numbers but the preponderance of evidence from life satisfaction surveys, income distribution, age of home ownership, applicant to college admissions,  overwhelmingly point to this.  I’m 51 and it IS much harder for my children:  CPP contributions rates, EI rates, wage growth which has largely stalled; tax Rates that are by and large higher. . . We may point to capital gains is money that has already been taxed.  I ask you, so what. . .why should someone who has accumulated passive assets pay a lower tax rate than someone who is sweating actively?  We are not paying sky high taxes.  Our taxes, in the grand scheme of things are generally lower now than they were 30 years ago and WAY lower than post world war 2 

Nutshelled.  I think we need to check our self serving bias and take a broader view. 

Michael’s view is similar:  Is this such a terrible increase? Remember, there was a time when the inclusion rate was higher at 75%. I take more issue with some of the commentary around this issue, rather than the increase itself.  I have heard it said entrepreneurs will not start a business now because of this. Nonsense!  People start businesses for a variety of reasons; however, to sell them at a profit (capital gain) is not high on that list (if it is even on the list). People will leave the country. Again, nonsense. . . So, I don’t have a big issue with the change either way. And while there is a certain amount of truth to the inflation argument regarding the capital gain, it has always been there no matter what the inclusion rate. (Speaking of inflation, I REALLY have an issue with the Pension NRTC, Line 31400, that remains at $2,000 since at least 1996!)”

Tineke Vos makes this point:  “On a general principal I agree with it, but the amount of $250,000 is too low. 

FOR THE NO SIDE:

Here’s Ann Laurin’s take:  Well Canada, if you didn’t feel stuck before let’s add yet another tax to our 5 tiered tax system! . . .As we pay more tax, we are not OK! And we are not Ok because we are over taxed! We feel robbed and we are very upset! We have not improved our health care crisis , our crime is up, missing women and children are still a major problem, we have human trafficking in our schools! Kids are killing kids! We have tent city communities popping up everywhere, some are so large that they are consuming city blocks and full parks! . . .I am a proud Canadian as I am still grateful for many many things, but we are in a very broken position right now and I have one question and I have asked it before!! Where are all the tax dollars going? If you are going to add more tax then give us something in exchange!A better run Canada putting our tax dollars to good use!”

Peter also said No:  “I do not agree with the government taxing capital gains in the first place; never mind increasing the inclusion rate. . .When is the government going to support people that have a work ethic and assist them in building their future rather than taxing every penny they earn; even if the earnings come from tax paid dollars already and due to inflation?  Lately the government has been handing out money to people so people don’t have to go to work to support themselves and thus, to some extent, become complacent.  Work is a divine responsibility each one should embrace, including the government. . .”

Derek says he really struggles with this, “particularly because of the deceptive rhetoric involved.  One thing to keep in mind is that any asset that may generate a capital gain was purchased with after-tax dollars.

As noted by another, it’s really a challenge for professional corporations.  A number of years back, Doctors Manitoba promoted incorporation as a way for its members to defer some taxation and look after their own retirement since relatively few have access to a pension.  Changing the taxation negatively impacts this group. . .I agree that this government has a spending problem. . . When citizens have fewer after-tax dollars, what do they do?  They cut back on spending and philanthropy. . . Considering the size of the federal public service has increased around 40% (in the range of 100,000 employees) since this government took office, it’s ridiculous that they suggest Canadians should tighten their belts

Doris Woodman-McMillan agrees:  There are two things a government can do to balance their books - bill more or spend less.  I vote for the latter.  This government’s civil service has ballooned in the last 8 years.  Wages and increasing benefits all have to be paid for by….. US!

Here’s Dan Allen’s recommendations:  “We all know taxes have to go up and the bigger problem with legislation is its divisive nature - pitting the successful against the less successful. There’s also a sense of less control over personal and corporate tax destiny. And they could have freed up some rental and cottage properties to soften the housing market if they gave second-property owners more time to react. . . Go with a 60% inclusion rate for everyone and make it effective Jan 1, 2025 to simply the tax filing and provide some time to sell properties. Increase GST to 6% for more tax revenue on those that consume - and the consumer has choice how to spend and get taxed or not. At the same time, review what gets GST taxed so it doesn’t impact the necessities of life.  Lock in carbon taxes where they are, and reduce rebates to finance carbon reducing infrastructure and increase “greener” energy production. . .”

Pierre Senecal notes:  “I agree with most comments to date, but I want to add that the different treatment for personal and corporate capital gains flies in the face of tax integration.

Here’s Virginia Hoover:  “Capital gains tax is mostly a tax on inflation, which is very unfair.  There should be a chart of inflation adjustments before any tax is levied.”

Ray Mistry’s concern is for professionals:   is Firstly, the $250,000 limit is rather low and should have been around $500,000. Secondly, the same $250k exemption at the 50/50 inclusion rate should have been allowed to CCPCs for professionals like Doctors, Accountants, and others as this was a good way to fund retirement funds in CCPCs. Self-employed professionals don’t have a company pension plan.

Maria Cheng:  No, I don’t agree.  It hurts the economy as people may choose to leave Canada or invest somewhere else.

Robert Litschel:  History has shown that when a government increases the taxes on businesses and investors, those same investors decide to go elsewhere (to a different country) in order to pay less taxes.  Right now, Canada is an attractive place to locate and invest.  Our current government is wanting to drive them away which will, in effect, reduce the tax revenue they will receive.  As has been mentioned many times in the past eight years, the government has a spending problem, not a revenue problem.  If they manage to get more revenue, they seem to be able to spend it easily enough.  Spot the problem?  The key is to make investment in Canada attractive not repulsive (which this policy is clearly going to do).

Last words go to Brian Horton:  How can you keep taxing Canadian’s at this level!

By Brian Horton on May 02, 2024

Thanks for weighing in on this very controversial new tax.  Learn the comprehensive details and calculations we anticipate in the CE Savvy™ Summits – Retirement & Estate Planning Course.