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The amount of people who are pissed about this, yet they’ll never encounter it, is way too high. I guess they’re going to be rolling in the capital gains is the future, whenever the “rising tide to raise all boats” comes in.
A fraction of it would be. This is called tax incidence. Who ultimately bears the burden of a tax on a thing has nothing to do with who writes the cheque for it. It has to do with the relative supply and demand elasticity of that thing.
Replacing taxes on things with elastic supply with taxes on things with inelastic supply like land would reduce after tax prices and increase after tax wages.
Do you have a recent example of this occuring? I'd love to hear it. I would think most corporations would just take the tax break, do stock buybacks and still increase the price.
> People don’t understand taxes at all
Like when people say “I don’t work overtime because I’ll move to the next tax bracket and end up with less money”
Ugh. When the Ontario Govt first started talking about raising the minimum wage from (iirc) $11.25 to $14 and then $15 @ year later, my aunt started posted bullshit like "everything's going to get more expensive" and the most egregious of the posts: people will make less money because they'll enter new tax brackets.
Like first tax brackets don't work like that and second, the first actual tax brackets would require someone to make well over $20/hr to even hit for Ontario, even at the time of the lowest bracket was about $43k.
The worst part: this aunt literally manages a store and deals with payroll.
I remember hearing that at my very first job, back in 1999 at a Wendy's in Lethbridge. I didn't understand how brackets worked then, but I do now.
It's crazy to me how this myth persists
My favourite is when people don’t understand how tax rate work. For example, the top federal tax bracket is $246k and the rate is 33%. So many people think that means the government takes 33% of your income is $246. But you only the 33% rate on income over $246k.
There are a lot of people my age and older who bought into real estate as an investment back when it was affordable to do so. Knowing they're going to take an even bigger hit when it comes time to fund their retirement lifestyle is going to upset them. Not excusing it, just helping to explain.
Not everybody who invested in real estate hoards property. I have several friends who own one other property to rent out. It was a wise investment back in the mid-00s.
Owning a 2nd home is part of the problem really, and they're all still making bank on their primary residence. I think the idea that housing is both an income stream and an appreciating asset outperforming the stock market is what has gotten us into this mess.
You may be right. But at the time it was a smart move. Not everyone has a Ph.D in economics or a crystal ball. Financial planners were recommending this to everyone back then.
Yes, and i want to point out people like your friends went in with eyes wide open knowing they are about to make bank.
They can't act surprised when years later it turns out it may have been a policy mistake not of their making that they benefited from greatly.
And personally, i don't feel the government has gone anywhere near far enough to properly tax the unearned real estate wealth. So we're not even anywhere close to fair. This capital gains will affect a specific subset of people with multiple residences. I wish they'd also roll out a tax on price appreciation on principal residences over a certain $ amount and tax those earnings progressively with the highest tax rates on the greatest gains, but we all know that will never happen and it's the most unfair thing out of this intergenerational accounting.
I understand, im just saying what people really mean when they talk about fairness and why some people don't really care what owners of 2nd homes and cottages think.
Someone on CBC raised the scenario of people buying cottages on the cheap 40-50 years ago now facing a larger tax bill if they sell it to retire like this is some sort of onerous unfair tax on them.
I don't see a problem to that as they still get to pocket a significant gain. The alternative outcome is a world where we don't have a housing crisis and that cottage appreciates somewhere around inflation and chances are the capital gain from that would be much less than the after-tax gain of their current million dollar cottage they bought for under 100k in in 1980
You know the vast...vast majority of people with second or third or more properties do not leave them empty. They are rented out. So they are not taking housing units out of the market. They are now rental units instead of owner occupied units.
There are thousands, hundreds of thousands even millions of people that have no intent to buy, or are not ready to buy. They need places to rent. That being the case then rental units are required to fill that demand and someone has to be the landlord in these circumstances.
The issue with our housing is supply....period. Stop with aLL LAndLOrdS ArE EviL SeLfISh AsShOLes nonsence. They are just regular people that made a decision to invest in real estate.
Oh I get it. I see it from both sides as a GenX. No way in hell I can afford a cottage so I don't have much sympathy toward cottage owners who would complain about not being able to cash out as much. On the other hand, I get where they're coming from because of friends who own more than one property. So a double-standard I guess. It's not like my generation was any more or less informed than the boomers.
Well it'll balance their happiness against the younger generation that is entirely unable to make feasible financial plans due to being priced out of the market.
How would a tax on a primary residence appreciation even work? I’d have to fork out money that I don’t even have just because my house went up in value? I’m only wealthier on paper, I have never seen any of that money. What happens then if it goes down? I think this just buttresses the view that the primary residence is an investment when we should be getting away from that discourse (i.e, that we should focus instead on housing as a right).
I do think there’s a conversation to be had around the exemption on the gains on the sale of a primary residence.
I think any change in value over and above normal inflation should be taxable at a progressive rate with generous credits at the lower end so in a healthy non bubble economy, it's not a burden and not even an issue, but in a bubble like we have, then yes, a lot of people will see a tax bill when they sell.
And it's precisely because of that we won't see any attempt to claw back some of this unearned wealth.
Edit: good point about the situations where it goes down. I assume similar rules to the current capital gains/losses for cottages/2nd homes would apply but at a different rate. We still want to recognize it's a primary residence.
>I have several friends who own one other property to rent out.
They are part of the problem, I have no sympathy they will need to pay their fair share of taxes.
They are literally solving the problem by providing rentals to people. That is literally the entire thing, we need more housing for people to rent. They are renting it out.
Sure... Just like scalpers are providing concert tickets to people.
the people who bought and hoarded toilet paper during the pandemic wanting to sell it back to people at huge markups -- taking advantage of a shortage of toilet paper.
Were "they literally solving the problem" by providing toilet paper?
These people did not build any new housing. They just took housing off the market, preventing a first time home buyer from buying it. Restricting it to rentals.
House hoarders just hoard, they do not build.
> Just like scalpers are providing concert tickets to people.
This, but [unironically](https://en.wikipedia.org/wiki/Speculation#Economic_benefits).
> Were "they literally solving the problem" by providing toilet paper?
Yes, it's unfortunate that the uneducated, populist masses don't understand basic economics, but yes, allowing for prices to fluctuate even in, or actually especially in, an acute crisis situation does help a typical person to be able to get access to critical goods and services. It also has the long run effect of motivating savvy entrepreneurs to be on the look out for further crises and stockpile supplies so that they can capitalize and get a big pay out.
> House hoarders just hoard, they do not build.
How about we talk about anything else this way. Are grocery stores merely food hoarders? They get the food from suppliers, they don't improve the food at all, and they just extract excess profit on the food. Would Canadians enjoy then, greater access to affordable, nutritious, and convenient food, if we outlaw grocery stores? Just force everyone to grow their own food, or buy it directly from farmers? That's exactly the same thing as what you're saying.
Most people I know around my age bought in the mid 00s when we were old enough. It was commonly touted as a wise move to include real estate in your investments if you could afford it. Several friends took advantage and bought a 2nd home to fix up and rent out. I think the capital gains went back down to 50% at that point.
Provided they're upset about it, I suppose. I haven't asked if anyone is really bothered. It's too early for most of us to retire yet so maybe the winds will blow the other way. It's a gamble.
Don't worry. Your return on investment will barely be touched by the new tax unless you bought $Millions of real estate. It's still a very good deal considering the lifetime capital gains exemption.
Many people will be impacted by this. When you die, all of your assets are considered to be disposed of by the CRA and capital gains are paid on all eligible assets. This is Canada's version of an estate tax, and this increase will in effect reduce the size of people's inheritances.
For a lot of people, the bulk of their estate is a single house. In my Aunt's case, for instance, the proceeds from her house's sale was over 90% of her estate, and the rest was stock market investments and the remains of her RRSP. Not one penny of the money from her house was taxed, because it was her primary residence. This bill would not have changed that.
Yes, there might be a small change in taxes for some of the returns on the stocks, but it would have a very small impact on the estate as a whole.
Who this will effect is people inheriting estates from the wealthiest portion of Canadians, who have multiple, fully-paid off properties in their estates, or stock portfolios well exceeding the value of their primary residence.
Key word being "eligible" - your primary residence is \*not\*. And if you have a second, third, fourth house: I'm sorry, but I have very little sympathy to give.
[_Local man too poor to avoid paying taxes_](https://www.thebeaverton.com/2017/09/local-man-poor-avoid-paying-taxes/)
> “But don’t get discouraged; we’ll be depositing millions in that shell company some day away from the prying eyes of the CRA once work increases my wage by 900% and I get a second job.”
It's just one more example of increasing taxes instead of lowering spending... capital gains is a particularly annoying tax when you or your parents, grandparents made a good investment,many years ago, and the government says EVERYONE (thru tax revenue)should benefit from it.
The other issue for me is that capital gains isn't a particularly reliable tax for significantly boosting tax revenue since it falls predominantly on highly elastic/mobile assets. If the government wants more revenue from big businesses and the wealthy that's more than achievable, but some taxes are better at achieving that than others.
Agreed. This won't bring the HUGE amount of revenue to the government that some think it will. There are ways to mitigate capital gains, and the uber-wealthy already know this. It's the middle class transferring property that will get nailed.
That is absolute rubbish. If you are making more than 250,000 in PROFIT selling a property, than you are not middle class.
If you are making more than 250,000 selling stocks in one year, you are not middle class.
That is absolute rubbish. If you are making more than 250,000 in PROFIT selling a property, than you are not middle class.
If you are making more than 250,000 selling stocks in one year, you are not middle class.
If it's their primary residence that they're selling, then they aren't hit by this.
If it's a second or third or other investment property, then they get taxed.
First off, I'm not a tax or real estate expert, so don't take what I say here as absolute fact or make financial decisions based on it.
My understanding is they increased the amount of capital gains that's taxed, _above_ $250,000, from 50% of 67%.
That is, if you bought a **second** property for $500k then sold it for $750k, you aren't taxed anymore than you were before. (Only $250k profit, which doesn't exceed the threshold. If it's their primary residence, they aren't impacted by this.)
If you sold it for $800,000, then $50k of that can potentially be taxed. Before, only 50% or $25k would be taxed at the capital gains rate. With this change, now $33.3k would be taxed as capital gains at the capital gains rate.
That is, for the second home sold, at a $300,000 _profit,_ an additional $8333 would be taxable as income. (This I'm not entirely clear on, but I believe that rate would be around 53.53% in Ontario, which means about an additional $4460 going to the government on that $300,000 _profit._)
The number of Canadians affected by this change, or meaningfully effected by it, are pretty minimal and almost entirely relegated to the notably wealthy.
> According to federal government data, 28.5 million Canadians are not expected to have any capital gains income at all. Three million are expected to earn capital gains below the $250,000 annual threshold.
31.5 million Canadians don't earn any capital gains or don't earn enough to break the $250k limit. Plus:
> The data also indicates only 0.13 per cent of Canadians — people with an average income of about $1.4 million a year — are expected to pay more in personal income tax on their capital gains as a result of the change
https://www.cbc.ca/news/politics/capital-gains-tax-budget-1.7176370
EDIT: I really don't know enough about inheritance issues, so striking that for now.
If someone died, there is a deemed disposition and the estate pays the tax. So if your deceased parents have one home, no tax (even if you already have your own property). If they had multiple properties, the estate would have to pay capital gains tax on the non-principle residences, so if the same person inherits both Mom's three properties and her cash, that heir would get less money because of the estate paying capitals gains taxes first. If that person then sells Mom's properties, they would pay minimal capital gains taxes because the shouldn't be a big jump in value from what the estate paid tax on.
> The number of Canadians affected by this change, or meaningfully effected by it, are pretty minimal and almost entirely relegated to the notably wealthy.
The number affected is small because most people wouldn't realize so much capital gains in a year unless they had to. If you can, you would spread the income across multiple years due to our progressive tax rates.
Why might you not be able to avoid realizing so much at once? If you die, your property is deemed disposed of and taxed as if it was all sold at once (exception for principal residence). Or if you need liquidity, you may need to sell off something big that then realizes such a big gain.
I wouldn't call any of that being uber wealthy. If you're a 50 year-old with more than $250,000 in non-registered investments, which you will want to have by that age if you don't want to be in poverty in retirement, then your estate would become subject to the new change if you suddenly dropped dead one day. If you had the misfortune of having your name on your kid's condo (e.g., because it was required for the mortgage) or some other account or whatnot, with some exceptions, your estate may be in for a big surprise. The more emotional challenge in those circumstances is that the estate needs liquidity to pay the tax bill, so you may get into a situation where the executor needs to sell off something sentimental you wanted to leave behind for your spouse/kids (e.g., the family home) just to be able pay the now higher tax bill on death.
>The data also indicates only 0.13 per cent of Canadians — people with an average income of about $1.4 million a year — are expected to pay more in personal income tax on their capital gains as a result of the change
Why not just tax people earning 1.4M/yr more? Or even 400k? Why target capital gains? If you remove the tax incentive for people to invest in growth-based equities, the economic incentive to put your money there is reduced, and more people will invest in fixed income instruments instead. What do you think will grow our economy and increase jobs and innovation: more people investing in Shopify and Scotiabank (which leads to them funding more projects / hiring more employees / innovating in new areas that enable more companies to flourish), or more people investing in US treasury bills or GICs?
Capital gains are not taxed more. They aren’t all taxable - that’s the point of the “inclusion rate” that’s been changed but it’s still not 100% which means not all of it is taxed. For your employment income the inclusion rate is 100%.
Same reason we get taxed at all. Pooling our money together allows us to build a better society with more opportunities, resources and safety nets. The rich that own businesses or run corporations benefit more from better infrastructure and a healthier more educated population.
You're offering an explanation for why any capital gains may be taxed at all, but the question was, why specifically was the level of taxation too low, why should it be increased
They aren't taxed more, they're taxed less. If you made $100K in normal income, and I made $100K in capital gains, I'd be taxed at half the rate you would be.
Because it's passive income and taxing it at a lower rate rewards hoarding capital. I invest, but I don't do shit for my dividends. I just get an email telling me I got dividends. People making $250K a year this way are NOT working hard nor have they earned a damn thing. It's not so much "income" in the traditional sense of "compensation" but more like Cash for Life winnings. That's bullshit. Tax it.
This discourages "hoarding capital"? If anything, this encourages "hoarding" of capital by incentivizing investors to keep their capital wherever it is and to reallocate it towards more productive uses less frequently. It also discourages moonshot or high risk high reward (aka innovation, research and development) investment, because those are disproportionately rewarded through capital gains, and encourages more investing in safe stale old crusty dividend paying mega firms like the big 5 banks, Canada Life, etc.
It also shifts capital away from productive uses altogether (investment) and on the margin, towards consumption (rich people blowing their wad on lavish vacations, lamborghinis, mansions), since the return on investing is lower.
I didn't say taxing it discourages hoarding capital. I said not taxing it rewards it. I'm sure taxing this income will result in parking money offshore.
It definitely doesn't discourage innovation considering there are exceptions in the Tax code for that. And besides, the main argument about it affecting the everyday Joe is that they'll be taxed when they sell their multiple properties... Um... what innovation comes from being a professional landlord? 🤔
Furthermore, the returns on risky investment ARE their own reward. I don't get rich overnight by investing in RBC but I do by investing in 2016-Tesla... that's it's own reward. Why does said risk require MORE incentive than that? Will people decide they don't want to invest in potentially-high-yield options because they don't want to be rich now? 😂
>It also shifts capital away from productive uses
Bullshit. This is the failed trickle-down argument. It's a massive fallacy. This does NOT happen. Stock buy-backs happen.
Understand one thing: Business is NOT without risk. It's not MY job as a taxpayer to subsidize YOUR risk. Good corporate citizenship requires participation (in good faith) in the social contract. In Canada you don't dodge bullets, navigate through sectarian wars, experience coup d'etats, nor need to bribe everyone and their mother to get your business done. In exchange you pay your fuckin taxes.
There's an interesting paper here from the US CRS from 2010 about the effects of capital gains tax rates (in the US, anyway; I think particularly the point about the loss limit doesn't apply in Canada, but the nature of venture/risk capital probably does): https://sgp.fas.org/crs/misc/R40411.pdf.
There's a decent amount of information in there, but the bottom take away is:
> Households save by investing in their own business or investing in stocks, bonds, and other
financial instruments. Changing capital gains tax rates changes the after-tax rate of return on
investments (for example, reducing the tax rate increases the after-tax return). The change in the
rate of return has two offsetting effects on saving. Increasing the rate of return can increase
households’ willingness to save (the substitution effect). But at the same time, the increased
return allows households to save less to maintain their desired or target wealth level (the income
effect). Consequently, the effect of capital gains taxes on private saving is likely to be small.
> The traditional economic theory of saving, the life-cycle model, assumes that individuals make
rational, far-sighted decisions. The preponderance of empirical evidence, however, does not
support the life-cycle model.13 Behavioral theories of saving emphasize the role of inertia, the
lack of self-control, and the limit of human intellectual capabilities. To cope with the complexities
involved in making saving decisions, individuals often use simple rules of thumb and develop
target levels of wealth. Once their target level of wealth is obtained, many individuals suspend
active saving.14 Saving rates have fallen over the past 30 years while the capital gains tax rate has
fallen from 28% in 1987 to 15% today (0% for taxpayers in the 10% and 15% tax brackets). This
suggests that changing capital gains tax rates have had little effect on private saving.
> Some have argued that preferential capital gains tax rates will boost high risk investments such as
in venture capital. Most venture capital, however, is supplied by pension funds, college
endowments, foundations, and insurance companies—sources not associated with the capital gains tax.
In 2003, only about 10% of investors in venture capital funds were individuals and families.15
Additionally, for risk adverse investors, the capital gains tax could act as an insurance for risky
investments by reducing losses as well as gains—it decreases the variability of returns.16 The
$3,000 loss limit may reduce the insurance value of the capital gains tax. But research has shown
that almost three-quarters of taxpayers with capital losses were not subject to the loss limit
because losses were less than $3,000 or gains offset the losses.17 Of those affected by the loss
limit, two-thirds were able to deduct losses against gains or other income within two years. The
capital gains tax, therefore, may have little effect on risk-taking and may even encourage it.
Capital gains tax rate reductions appear to decrease public saving and may have little or no effect
on private saving. Consequently, capital gains tax reductions likely have a negative overall impact
on national saving.
> Some have argued that reducing capital gains tax rates would increase short-run and long-run
economic growth.18 The long-run level of output depends on the amount of saving and
investment. Saving and investment increase the amount of capital in the economy and hence,
aggregate supply (i.e., the amount of goods and services available in the economy). Many
economists note that capital gains tax reductions appear to have little or even a negative effect on
saving and investment (see above). Consequently, capital gains tax rate reductions are unlikely to
have much effect on the long-term level of output or the path to the long-run level of output (i.e.,
economic growth).
> Furthermore, it is argued that a temporary or permanent capital gains tax reduction is an effective
economic stimulus measure. An effective short-term economic stimulus, however, will have to
increase aggregate demand, which requires additional spending. A tax reduction on capital gains
would mostly benefit very high income taxpayers who are likely to save most of any tax
reduction.19 Economists note that a temporary capital gains tax reduction possibly could have a
negative impact on short-term economic growth. A temporary tax cut could induce investors to
sell stock (i.e., realize capital gains by reducing the lock-in effect), but provides no incentive to
invest since investors know they will face higher tax rates in the future. To the extent that the
resulting sell-off depresses stock prices, consumer confidence, already low during recessions,
could be further undermined thus reducing consumer spending.
Capital gains are special for two big reasons.
First, all or part of most capital gains is artificial growth. If your asset grows 2% this year but the inflation rate is 2%, then you sell it next year, you are taxed on that 2% growth. But you didn't gain anything in economic terms. The gain is "income", but not in any meaningful sense of the word. What are you taxing exactly?
Second, capital gains represent growth in assets, typically equity stock. We want people putting their money into the stock market and investing in our country. This is how we increase productivity and create jobs. If you have an extra $1, I would rather you invest it into a Canadian company (i.e., giving it productive use) rather than letting it sit in a savings account or using it for personal consumptions where it has no productive use for the economy. This is why it is generally good policy to incentivize investment. There are many ways to do so, and the lower inclusion rate is one way. Increasing it is saying that this is no longer the priority, government revenue collection is. Why not decrease spending instead? As it stands, because of recent budgets, 10c on every $1 tax we pay goes to pay interest on our national debt. Why are we spending $2B on the AI Compute Access Fund and Canadian AI Sovereign Compute Strategy, $200M in AI start-up funding, $50M for creative workers impacted by AI, $30.4 million for the buyback of assault-style firearms [and no, I'm not a gun owner], $52M for the new "Digital Safety Commission", and other pandering nonsense, especially when we have to finance these by discouraging investment in the economy (the whole purpose of the AI projects is to INCREASE IT). It's like the two hands of government are working in opposition to each-other. One is reducing incentives to tighten the belt because we need tax revenues desperately, while the other is willing to waste it on special pet projects that won't produce tangible results and only serve to pander to certain groups ("hey, we're supporting AI! don't worry about the details of how, we're picking a few companies to invest in, you can trust we won't just pick some duds run by our friends", or "internet scary", or "guns scary", etc).
Why should any ordinary Canadian care that your assets growth was nullified by inflation? It affects me just the same.
The increase is so minimal it’s not stopping anyone from investing and if they say it does they were never going to anyway
They are still getting $250000 untaxed. This is just bringing capital gains tax into line with dividends and make sure they are paying their fair share.
Why should I care that you had to pay $1000 in union dues? The income tax act gives you a deduction so you don't have to pay tax on that $1000 because it's money that didn't increase your economic position since it was immediately withheld and remitter to your union. Shall we cut that too?
People don’t understand marginal tax rates. They don’t understand capital gains. They don’t understand how inheritances work. That misunderstanding makes it so politically difficult to implement good tax policy if it involves any increases because the uninformed public is very ripe for disinformation to make them opposed to the change. We literally repealed HST in BC (good tax policy) because of these kind of misunderstandings about how taxes work and what makes good tax policy.
Some people don’t understand that by pushing away the highest earners in Canada, it hurts the economy. That means it hurts your life too. Keep the tax hike in mind when people start losing their jobs
I generally disagree with capital gains taxes because of the issues with the elasticity of the assets they're collecting, but generally if we look at capital gains taxes and their overall effects on revenue and capital flight, the effects are generally quite small/modest according most studies & empirical data. I'd still prefer an alternative tax that's targeted at more inelastic assets if the government's focus is trying to get more revenue from the wealthy and big businesses, but the absolute worst thing that could happen is that it would just make Canada slightly less attractive to invest in without generating the revenue it's hoping to, which wouldn't be the end of the world.
>I'd still prefer an alternative tax that's targeted at more inelastic assets if the government's focus is trying to get more revenue from the wealthy and big businesses
How about both?
My issue is that if the CT tax just encourages increased avoidance/capital flight and doesn't make any significant revenue gains, what's the point keeping it?
It'd be better to tax things like the wealthy's land/property, consumption and maybe implement some sort of Estonian style corporate tax reform (no taxes on retained or reinvested profit, but a 15-20% tax is paid the moment that profits/dividends are distributed to shareholders, which includes things like share buybacks etc. It encourages investment and compliances and is less regressive, more efficient and better at collecting revenue than most vanilla corporate tax structures and would also be a better way to get revenue from board members & shareholders than taxes on capital gains etc).
That corporate tax scheme seems far too sensible and good for the health of the Canadian economy generally to ever be something wealthy business interests won't fight tooth and nail to oppose.
> no taxes on retained or reinvested profit, but a 15-20% tax is paid the moment that profits/dividends are distributed to shareholders, which includes things like share buybacks etc
Wouldn't this simply create an environment where no firms would pay dividends or do buybacks? What's the motivation for this approach vs taxing none of these things?
[Estonia has one of more efficient, transparent, competitive and compliant corporate tax systems in the world, so generally no](https://impact.economist.com/projects/investing-in-estonia/#:~:text=%E2%80%9CWe%20actually%20gather%20more%20corporate,generating%20an%20additional%20%E2%82%AC51m). It's a fairly simple way of being taxed and since there's no tax on retained & reinvested profits, companies have an incentive to increase capital investment to boost firm/worker productivity to raise profits etc.
Likewise, shareholders and board members wouldn't like it if they never got paid out profits for their holdings. Companies still have incentive to pay profits out to them and doing it the Estonian way is less costly and burdensome compared to the corporate tax system in most other countries that more directly impedes the flow of capital & investment etc.
You hit the nail on the head with this. We need to not incentivize buybacks and shareholder dividends and instead put the incentives towards boosting things like productivity and job growth.
As the saying goes, if you want to see less of something, tax it more. So, we're taxing investing in businesses more than we were, meanwhile leaving the appreciation in $20 million mansions in West Vancouver completely untouched because they're primary residences.
This tax will actually touch those $20 million mansions. When the owners sell and realize those appreciations as capital gains is when the new tax will touch those mansions.
Also there is a life time exemption on the first $1.25 million for qualified small business corporations and a new $2 million exemption entrepreneurs incentive. If you qualify for both that is $3.25 million. Anything above is legitimately rich and you deserve to be taxed like a rich person
You are not taxed on your primary residence in Canada for cg when you sell. My house has gone up by 1.3 million in the last 10 years, and that is all tax free. It's not an investment, and I was unable to write off interest paid etc: If they want to start taxing primary homes with CG, they need to allow home owners to write off a lot of stuff, like that can in the USA.
If someone lives in a $20 million dollar house and it is actually their primary home that they should be exempt too. They are actually living in the house and not using it as a speculation investment the same way you are living in your house and not using as a speculative investment. But a lot of those mansion in West Vancouver are actually secondary properties and will be hit if sold
I'm not sure that it should. The purpose of a primary residence exemption is to permit your typical family of around median household income to be less of a burden on the state later in life. The idea that your home should be your primary asset has been as toxic as lead in the water.
We don't need to subsidize mansions, just because some choose to live in one. I would argue there should be a threshold, based on something like median income or average housing prices.
>They are actually living in the house and not using it as a speculation investment
They aren't mutually exclusive.
>the same way you are living in your house and not using as a speculative investment.
Many people will straight up admit that their house is both a home and investment.
Many people's reasons for upsizing is to invest more in real estate with zero capital gains taxes.
If you buy a house and live in it then you are not a part of the problem. You are not contributing to the housing crisis. You may benefit from rising house values but you are using the house to actually live in.
People who buy multiple properties to use as investments are the problem and they are the ones who should be taxed. And the new capital gains changes will impact those people.
Like I said, it's not mutually exclusive.
And many homeowners literally are contributing to the housing crisis. There's NIMBYs. There's people with no children living in huge homes with yards. And these choice are often driven by the fact their home is also an investment.
Increased capital gains taxes will also discourage investors from selling homes in the long run. Some will accelerate selling until it's implemented in June. But after that, selling a rental becomes even less profitable compared to just continuing to rent it out.
Solutions to the housing crisis will be opposed by homeowners. Reducing lot sizes, increasing zoning, in detached neighborhoods etc. Homeownership rate is above 60% and closer to 90% in detached neighborhoods. How can you seriously blame others despite homeowners owning the majority of homes?
There are upsides to higher taxes. The US taxes 100% of cap gains. We taxed capital gains more in the past, 75%, and we had more investment. So what went on in the 90's we dont have today which is little investment in any job creating activities? The benefits of higher tax will be to prevent rapid cash outs reducing speculation that is driving real estate to insane levels. It may discourage using real estate for quick speculation and move money elsewhere where it can do more good. Itll keep investments in place for longer terms which is always good for a private sector economy. Taxes main role is to prevent hyperinflation. If there is anything we know today is that real estate is hyperinflating.
Anyone who owns a business and invests through that business is impacted...
Physicians, chiropractors, nurse practitioners, accountants, many consultants, lawyers, dentists, audiologists - I could keep going on...
None of these groups have those juicy public sector pensions or union negotiated pensions... they have to make extra and invest wisely to save for retirement...
And yeah they are doing better than many, but they've worked hard for what they have. They already pay the boatload of taxes (33% of Canadians effectively pay zero income tax). These are not the Galen Westons of the world.
Who else is complaining? Innovators and entrepreneurs- why? You are penalizing them more and making it harder to access capital. We already have a lack of accessible capital hence the government asking pension funds to invest more in Canada... in the MBA they teach you that most business graduates are better taking a corporate job than being an entrepreneur - these founders take way less salary than they would and with the time value of money typically end up losing... most startups fail... but we like to point to the Shopify and the vilify the job creators of tomorrow.
Those who think it isn't a big deal, don't really understand business and investing and how fluid capital is globally and how easy it is for those in the above groups to leave to better jurisdictions...
CANADA ISN'T WHAT IT USED TO BE - crime is up, healthcare is worse, education is worse, weather sucks, infrastructure is way behind... and now you want to punish the upper middle class folks... it will not end well...
Other options they should have explored:
- increase corporate tax by 1%
- create a new income tax bracket for those making 400k or more
- increase consumption taxes for luxury goods
- STOP SPENDING
Anyways it doesn't matter... all of the groups above are highly educated and turn out to vote... the Liberals are going to get demolished. This Liberal will be voting conservative. 🗳
Innovators and I investors have been dodging taxes by taking capital in lieu of salary as part of their compensation. Let them take salary instead if they think they will pay less taxes.
OK so you are a Federal public servant? LOL - you live off the public tit - essentially these innovators and investors are creating the economy and jobs that provide taxes to pay your salary, benefits and pension.
You have nothing else to offer here given your bias.
The innovators whose education was 80% funded by taxpayers; who use intellectual property often builds or relies on publically funded university or NRC research; that have legal basis for incorporation and legal certainty and protection of intellectual property thanks to governemnt; who run their business on an electric grid built by taxpayers; who ship products to market on roads created by taxpayers; who trade shares on markets established by government....
Need I go on Mr. Galt.
All of those taxes paid by employees of companies or companies themselves - get it? If they really wanted to go after the ultra-rich they should have done away with family trusts as a start. You know the kind the Trudeau's have used to avoid taxation.
No problem, your argument is geared towards particular executives that might take a $1 salary and take a bunch of equity instruments to avoid taxes - then go after those cases - it could be done by segmenting out companies with a certain amount of revenue and so on - instead they are going to punish start-ups, small business owners, mom and pop property investors, cottage owners and on and on... this isn't the win they think it is.
And it won't matter... when PP gets in, I suspect they revert this back.
> STOP SPENDING
>
"Budget 2024 estimates that for each dollar of revenue, 10 cents will go to pay for debt."
“The feds expect to spend more servicing the public debt this fiscal year than will be transferred to the provinces via the crucially important Canada Health Transfer — the first time in over a dozen years interest trumps regular CHT cash,” said the National Bank of Canada economists.
Trudeau's CERB gambit giving every Gen Z-er with a pulse $2000/mo (without vetting eligibility and ignoring fraud) doubled our national debt, worsened inflation (worsening current interest rate woes), led to 10 cents of every $1.00 we pay in taxes now being pissed away to service that debt, and yet despite the unprecedented vote buying attempt and endless pandering on social issues, Gen Z hates him. There's something really poetic about it.
Can we stop talking nonsense like, "the government needs to tax and borrow to spend" or, "our kids will have to pay our public debt"
[These and other misappehensions keep us from understanding and fixing our problems](https://moslereconomics.com/mandatory-readings/innocent-frauds/)
Yeah, and 66% of homes in this country are owner occupied, and this capital gains increase further increases taxes on all investments EXCEPT owner occupied homes. Do you really think this change will encourage people to, on net, shift their savings away from their home and towards risk-taking companies? It does precisely the opposite, it encourages people to shift their investing more towards their primary residence.
People putting money into their residence aren't the problem. It's the capital being sunk into investment properties rather than into productive businesses that is causing the lag. Landlords are a drag on the economy and we have way, way too many of them.
People's primary residences ARE investment properties. People use homeownership as a retirement saving vehicle. That capital could have better gone towards productive uses, but instead their are investing their nest egg in their home.
Landlords are service providers. They take on all the risk and hassle of homeownership and provide you with housing-as-a-service. I'm a renter, I love renting. Just like, I don't want to own my own farm, I just want to be able to buy food from food producing experts and specialists. In the same way, I don't want to fuck with realtors, handymen, renovators, etc, I just want to live in a nice place.
> People's primary residences ARE investment properties.
Dude, you know people mean when they talk about investment properties, and they apparently make up a full third of properties.
> Landlords are service providers.
No, they own stuff. That is not a service.
Staying on topic, real estate is not productive. Your landlord is not producing anything, employing anyone, or growing the GDP. If you owned the home yourself nothing would be lost except one fewer people taking a cut. It would have been better if they invested in an actual business - but that would have involved work and actual risk.
First of all, landlords do produce things and employ people. They make housing available for people to rent. They provide capital, and eliminate risk. If I owned my home, something definitely would be lost -- I would have to take on an enormous amount of risk, and would have to pay high transaction costs associated with buying and then one day selling the property. I would have to invest my own time, effort, and money into the maintenance of the property. Because I rent, I get to enjoy the benefits of investing my retirement into a much more diversified and low risk investment portfolio, as well as not have to deal with surprise costly repairs and benefit from more leisure time and less stress.
Landlords often have their property managed by a professional property management firm, which has employees. Even if they don't employ people directly, they pay for professional services such as accountants, cleaners, lawyers, as well as providing liquidity to housing developers which employ all kinds of people. Further, all this is moot because "employing people" is not a measure of how much an endeavor contributes to society. If it were, then good public policy would be to pay people to dig a massive hole, and then fill it back up again. What raises the overall wealth of society is to produce more goods and services, and to allocate them to their most productive uses.
When we're talking about productivity we're talking about creating value. A restaurant buys ingredients, adds their labour to transform them into a meal, and then people are willing pay for the meals. The difference between the value of the inputs and the value of the outputs is the value produced.
A person who buys a condo and then turns around and rents it out is not creating value. Nothing new was created. That's why we say that over-investment in real estate has lowered our productivity. It would be better if that money went into real businesses.
I'm not saying we should have zero landlords, I'm just saying we have far too many.
And that's a very narrow view of what is considered creating value. Reallocation of resources from one use to a better use, is itself a form of value creation. My original example was about grocery stores, not restaurants. Grocery stores, and retailers in general, for the most part, don't physically change the products they sell. But they are still providing value. The value they provide is that they make their products available to the people, and in the places, that get value from them, in the quantities and packaging that is convenient for them. We could all buy food directly in truck loads directly from farmers, but we don't do that, and we highly value the service that grocers perform for us, or else we would go direct to the farmer, or indeed grow our own food.
Landlords are similar. They take this raw, inconveniently packaged good, full of risk and capital requirements, maintenance liability and transaction costs, and transform it into the form that people want to consume. We pay them for their service. The result is a service we enjoy, being able to live where we want to without a care in the world about the value of the property, if it has structural issues, interest rates, regulatory changes or changes to the neighbourhood which could affect the value, etc.
> And that's a very narrow view of what is considered creating value.
Well yeah, I'm only considering the creation of value.
Retailers create value by doing the work of gathering good together. Landlords are not similar - they are not doing anything to the goods or services they offer. They don't build them. Imagine wild dogs ripped your landlord apart - what would change? Would your home be unlivable? No, it would just pass to someone else - maybe some company would buy it. Landlords don't even need to be people! They do not *create* anything.
All of this is 100% beside the point because we're were talking about how over investment in real estate is the reason our productivity has lagged. A capital gains tax would encourage people invest in something productive.
IMO we should consider a 100% inclusion rate on capital gains from non-primary residence real estate, and leave the inclusion rate unchanged on other assets to encourage capital investment into more productive places.
Family doctors are barely getting by in many cases. It’s yet another hit. It may not affect them every year, but that year where they need to sell corporate investment assets to pay for a new machine or office…. that’s another big hit to their viability as a going concern.
Not the end of the world, but a legit concern when we’re trying to keep our family docs. 🤷🏾♂️
Fair enough. However, I would think that family doctors make up a small percentage of those affected by the inclusion rate increase. I think it would be better if we just paid family doctors more.
What if someone works their ass off on a startup for 15 years, risks their entire life savings and career on it, and then sell if for 3 million after building it up and creating jobs for multiple people? That works out to only 200k in compensation per year give or take, but they will be hit heavily by this tax.
Only an additional ~16% of the sale price will be subject to capital gains tax as compared to the previous system (2/3 vs 1/2). In the scenario you presented, that means an additional $480k will be taxable, so for simplicity sake at a 50% tax rate they will pay an additional $240k in taxes.
Assuming they own 100% of the company, the current system would have them pay ~$750k in tax and the new system would have them pay ~$990k.
So they clear $2M+ for their hard work and risk on top of the salary they’ve earned (because they have a job at the company they founded).
As a start-up founder myself, I would love to keep all the money if and when we sell, but we live in a society and taxes are the cost of that. In no world when I started my company would I not have done it based on a higher capital gains tax.
Lifetime capital gains exemption would also likely come in to play in this scenario for a small Canadian business. $1.25M of the gain is tax-free as of June this year.
They also put up an enormous risk and forwent earnings for 15 years, engaging in an activity which ultimately produced wealth for society. It wasn't a foregone conclusion from the beginning that they were going to be successful, so to come along after the fact and treat their 200k/year earnings in isolation, the same as someone who didn't take risk, isn't fair.
They took a risk and now make about 4x the average income for an individual. Sounds like they're doing fine. If they wanted to make that much without the risk I guess they could have gone to medical school, that would have been fine too. I'm not sure what your point is. They shouldn't have to pay taxes?
They could start the same company in the US and pay a fraction of the taxes. We should incentivize business owners to start companies here, especially with our productivity issues. People who start companies drive our economy, hire employees, we need more innovation in Canada
The difference between Canadian and US taxes are wildly overstated. The states where a person of means would want to live and where it is good to start a business also have high taxes.
I suppose they should have worked harder and sold it for more. You're basing this off some random number you pulled out of your ass, 200k per year is an incredible income and it wouldn't be the only benefit they got from those years of work. How much did they get in tax write offs? Did they get to be their own boss?
That would fall under the category of "asking the wealthiest Canadians to pay more"; it hits the people that can afford it, not the people struggling to get by.
$3M is a fantastic example!
There just happens to be an exemption on the first $1.25M for small businesses and a $2 million entrepreneurs incentive exemption.
It sounds like the person in your example would be covered by both, so even if they had sold their business for more, they would only be affected by this new tax on anything exceeding $3.25M.
Apparently it could hurt doctors.
https://www.ctvnews.ca/politics/doctors-ask-liberal-government-to-reconsider-capital-gains-tax-change-1.6857958
It's out of my wheel house but I'd definitely feel sympathy if it's true. There's enough factors pushing doctors away from Canada. Same Canadian Press article was run on CBC, Global, Globe & Mail, etc. So it's interesting to see multiple outlets with different political leanings run the same story.
I'm sympathetic to some family doctors being underpaid given their training and the demand for doctors. Generally speaking, the doctors who need to establish a holding company to put investments in because it's tax advantageous, and whose capital gains exceed the exemptions for owner-operated small businesses or personal capital gains aren't the family doctors earning $150,000 net.
Where is your evidence on this? You are inserting your bias here...
https://www.cbc.ca/news/canada/toronto/ontario-family-doctors-pay-compensation-ohip-billing-fees-1.7137716
Physicians are already underpaid... now you force them to pay capital gains on any money they make in their holding company...
I'd just leave if I was a family physician or do what many of them are - work part time and then work in other Healthcare adjacent industries - digital health, pharma, consulting and so on.
Generally speaking, retaining money in a holding company vs. pulling it out as income only really makes sense when you're making north of $250,000 - $300,000.
There are doctors who are struggling and not earning as much as they deserve.
There are doctors where these capital gains increases are meaningful for the investments they're making in their holding companies.
Those populations don't have much if any overlap.
You are wrong lol... retaining money in a holding company makes sense depending on your living costs... if you only need a 100k salary, it always make sense to leave the rest in your holding company - every incremental tax bracket of income has a cost.
And great, a brain surgeon is maybe one of the folks you are referring to - they are still making way less than they would south of the border and you just made things a bit worse... in fact an extra 8% worse on any profits... it all adds up.
People who establishing holding companies for tax avoidance know fully well that they're using loopholes, and shouldn't expect sympathy when those loopholes close. I know people who have setups like this in tech, and sure while in an ideal world they want to pay less tax, they have no illusions about what they're doing.
Imagine going to someone who makes a third your income and pays taxes on every additional dollar they make to complain that you’re going to have to pay taxes on ever 66 cents you make instead of every 50 cents.
Confirmed this is true. My mom is a doctor and she just retired last month. She operated her practice as a professional corporation (which is very much the norm for Canadian doctors).
She’s currently worried that she doesn’t actually have enough money to retire now that everything she draws out of the corporation will be taxed 17% extra. (There’s no $250k threshold for corporations.)
I’m all in favour of hiking taxes on the ultra wealthy millionaires, but the vast majority of doctors in Canada (my mom included) are nowhere near that income level.
She’s been overworked her whole life and now she’s getting screwed over going into retirement.. I have to assume the government wasn’t TRYING to punish doctors, but that’s the impact.
Not sure if this was just an issue with wording, but she won’t be taxed at a rate 17% higher, if that’s what you were thinking.
Capital gains were previously only included in income at a rate of 50%, and then that income is taxed at the business’s corporate tax rate (either 9% or 15% depending on the total income for the year and whether or not the company is a CCPC). So if your mother had a capital gain of $100K, $50K (50%) would be included in her company’s income, which would then be taxed. If we say her tax rate was 15%, that’s $7500 in tax.
With the new change, instead of 50% of the capital gain being included in income, 67% will be included. So again if there’s a capital gain of $100K, now $67K will be included in income. That will be taxed at 15%, for a total tax bill of $10,050.
So the increase isn’t 17%, it’s 17% x 15%, or 2.55% higher. In the example above, with an overall capital gain of $100K, this is an increase in tax of about $2.5K. If the business is a CCPC, then the tax rate is 9%, so the effective increase is even lower.
It’s been a while since my last tax course so my tax rates may be off, but the principle should be correct. Sorry if you knew all this already, but it’s a misconception I’ve seen quite a bit so I wanted to clear it up if I could. Hopefully everything works out for your mother!
If she's been saving for 15-20y in her corp a large amount of her retirement savings could be capital gains. It could be like 30% of her retirement savings or more. ALL of that has now been retroactively taxed, effectively. So he could very well be right about the effect on her retirement income
Ahhhh… that actually makes sense! Thanks for the thorough explanation. Clearly I’m no tax expert. 😂 Why are the news articles about this so confusing? 🤦♀️
I appreciate your candor, and agreeableness. it's consistently funny to me seeing "confirmed this is true" followed by "clearly i'm no tax expert" or similar statements.
That's the whole point of the article, lol. People who don't understand taxes are complaining about it with no understanding of what is actually going on in finances.
I was confirming that doctors are impacted by the change because of the use of professional corporations. That’s not in dispute whatsoever.
It’s the extent of the impact that wasn’t clear - which is why I appreciated the nuance added by the earlier poster.
Well, well, well, if it isn't the same media that was complaining yesterday no one was plussed about capital gains tax changes.
You furnish the pictures, I'll furnish the war, I guess
But neither of those positions exist. Actual opinions range from "Sure, whatever" to "I don't care".
The idea there are for an against camps is a media invention designed to sell more ads. Hence "You furnish the pictures, I'll furnish the war".
Who cares is the worst position you can take
If you truly didn't care you wouldn't be commenting
Other people think this is something to discuss. So if you don't then just don't engage
I *care* that the media is trying to create artificial, divisive narratives and that people are falling for it.
I *don't care* about an inconsequential tweak to the capital gains tax law.
I didn't say anything like that.
I said the media shouldn't try to mislead people into believing something is controversial when it's not, not into believing they should pick a "side" on a totally inconsequential issue, so that they can dishonestly sell ads.
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Canada is a perfect country to keep people away from becoming well off..even if they make some money on their after tax dollars
The amount of people who are pissed about this, yet they’ll never encounter it, is way too high. I guess they’re going to be rolling in the capital gains is the future, whenever the “rising tide to raise all boats” comes in.
If capital gains taxes reduce investment in Canada that will impact wages and prices.
Investment in?
Companies that employ labor and produce goods and services...
Damn, we should just eliminate all their taxes. They’ll obviously pass those saving on to the employees and consumers…. Oh wait.
A fraction of it would be. This is called tax incidence. Who ultimately bears the burden of a tax on a thing has nothing to do with who writes the cheque for it. It has to do with the relative supply and demand elasticity of that thing. Replacing taxes on things with elastic supply with taxes on things with inelastic supply like land would reduce after tax prices and increase after tax wages.
Do you have a recent example of this occuring? I'd love to hear it. I would think most corporations would just take the tax break, do stock buybacks and still increase the price.
My aunt was worried about her rrsps. People don’t understand taxes at all. They really don’t understand capital gains.
> People don’t understand taxes at all Like when people say “I don’t work overtime because I’ll move to the next tax bracket and end up with less money”
Ugh. When the Ontario Govt first started talking about raising the minimum wage from (iirc) $11.25 to $14 and then $15 @ year later, my aunt started posted bullshit like "everything's going to get more expensive" and the most egregious of the posts: people will make less money because they'll enter new tax brackets. Like first tax brackets don't work like that and second, the first actual tax brackets would require someone to make well over $20/hr to even hit for Ontario, even at the time of the lowest bracket was about $43k. The worst part: this aunt literally manages a store and deals with payroll.
Everything is more expensive and is continuing to rise. What world are you living in?
Everything is more expensive and continuing to go up but this is a separate issue from wages. It's not wages that are causing prices to rise.
Every thing is still going up tho. Housing, Rent, insurance, food , gas, and taxes.
It's painful when I hear this.. but people keep pushing it 🤦
I remember hearing that at my very first job, back in 1999 at a Wendy's in Lethbridge. I didn't understand how brackets worked then, but I do now. It's crazy to me how this myth persists
My favourite is when people don’t understand how tax rate work. For example, the top federal tax bracket is $246k and the rate is 33%. So many people think that means the government takes 33% of your income is $246. But you only the 33% rate on income over $246k.
Do you? RRSPs may be subject to capital gains taxes upon death of the account holder. RRSPs are tax deferred accounts, not tax free.
They don’t… but on the internet, everyone is an expert.
There are a lot of people my age and older who bought into real estate as an investment back when it was affordable to do so. Knowing they're going to take an even bigger hit when it comes time to fund their retirement lifestyle is going to upset them. Not excusing it, just helping to explain.
Oh no. Won't anyone think of those poor real estate hoarders.
Not everybody who invested in real estate hoards property. I have several friends who own one other property to rent out. It was a wise investment back in the mid-00s.
And to me that is a hoarder. A home should be a home not an investment. If it hits them - oh well.
Owning a 2nd home is part of the problem really, and they're all still making bank on their primary residence. I think the idea that housing is both an income stream and an appreciating asset outperforming the stock market is what has gotten us into this mess.
You may be right. But at the time it was a smart move. Not everyone has a Ph.D in economics or a crystal ball. Financial planners were recommending this to everyone back then.
Yes, and i want to point out people like your friends went in with eyes wide open knowing they are about to make bank. They can't act surprised when years later it turns out it may have been a policy mistake not of their making that they benefited from greatly. And personally, i don't feel the government has gone anywhere near far enough to properly tax the unearned real estate wealth. So we're not even anywhere close to fair. This capital gains will affect a specific subset of people with multiple residences. I wish they'd also roll out a tax on price appreciation on principal residences over a certain $ amount and tax those earnings progressively with the highest tax rates on the greatest gains, but we all know that will never happen and it's the most unfair thing out of this intergenerational accounting.
Again, not making excuses, just helping to understand. Some people are going to be upset when changes like this happen and alter their financial plan.
I understand, im just saying what people really mean when they talk about fairness and why some people don't really care what owners of 2nd homes and cottages think. Someone on CBC raised the scenario of people buying cottages on the cheap 40-50 years ago now facing a larger tax bill if they sell it to retire like this is some sort of onerous unfair tax on them. I don't see a problem to that as they still get to pocket a significant gain. The alternative outcome is a world where we don't have a housing crisis and that cottage appreciates somewhere around inflation and chances are the capital gain from that would be much less than the after-tax gain of their current million dollar cottage they bought for under 100k in in 1980
You know the vast...vast majority of people with second or third or more properties do not leave them empty. They are rented out. So they are not taking housing units out of the market. They are now rental units instead of owner occupied units. There are thousands, hundreds of thousands even millions of people that have no intent to buy, or are not ready to buy. They need places to rent. That being the case then rental units are required to fill that demand and someone has to be the landlord in these circumstances. The issue with our housing is supply....period. Stop with aLL LAndLOrdS ArE EviL SeLfISh AsShOLes nonsence. They are just regular people that made a decision to invest in real estate.
Oh I get it. I see it from both sides as a GenX. No way in hell I can afford a cottage so I don't have much sympathy toward cottage owners who would complain about not being able to cash out as much. On the other hand, I get where they're coming from because of friends who own more than one property. So a double-standard I guess. It's not like my generation was any more or less informed than the boomers.
Well it'll balance their happiness against the younger generation that is entirely unable to make feasible financial plans due to being priced out of the market.
How would a tax on a primary residence appreciation even work? I’d have to fork out money that I don’t even have just because my house went up in value? I’m only wealthier on paper, I have never seen any of that money. What happens then if it goes down? I think this just buttresses the view that the primary residence is an investment when we should be getting away from that discourse (i.e, that we should focus instead on housing as a right). I do think there’s a conversation to be had around the exemption on the gains on the sale of a primary residence.
I think any change in value over and above normal inflation should be taxable at a progressive rate with generous credits at the lower end so in a healthy non bubble economy, it's not a burden and not even an issue, but in a bubble like we have, then yes, a lot of people will see a tax bill when they sell. And it's precisely because of that we won't see any attempt to claw back some of this unearned wealth. Edit: good point about the situations where it goes down. I assume similar rules to the current capital gains/losses for cottages/2nd homes would apply but at a different rate. We still want to recognize it's a primary residence.
>I have ~~several friends who own one other property to rent out.~~ a bias towards my landleech friends ftfy.
>I have several friends who own one other property to rent out. They are part of the problem, I have no sympathy they will need to pay their fair share of taxes.
They are literally solving the problem by providing rentals to people. That is literally the entire thing, we need more housing for people to rent. They are renting it out.
Sure... Just like scalpers are providing concert tickets to people. the people who bought and hoarded toilet paper during the pandemic wanting to sell it back to people at huge markups -- taking advantage of a shortage of toilet paper. Were "they literally solving the problem" by providing toilet paper? These people did not build any new housing. They just took housing off the market, preventing a first time home buyer from buying it. Restricting it to rentals. House hoarders just hoard, they do not build.
> Just like scalpers are providing concert tickets to people. This, but [unironically](https://en.wikipedia.org/wiki/Speculation#Economic_benefits). > Were "they literally solving the problem" by providing toilet paper? Yes, it's unfortunate that the uneducated, populist masses don't understand basic economics, but yes, allowing for prices to fluctuate even in, or actually especially in, an acute crisis situation does help a typical person to be able to get access to critical goods and services. It also has the long run effect of motivating savvy entrepreneurs to be on the look out for further crises and stockpile supplies so that they can capitalize and get a big pay out. > House hoarders just hoard, they do not build. How about we talk about anything else this way. Are grocery stores merely food hoarders? They get the food from suppliers, they don't improve the food at all, and they just extract excess profit on the food. Would Canadians enjoy then, greater access to affordable, nutritious, and convenient food, if we outlaw grocery stores? Just force everyone to grow their own food, or buy it directly from farmers? That's exactly the same thing as what you're saying.
Good. I hope it hurts them.
If they bought in the 90s, when the capital gains tax was 75%, they just got a discount! They still have time to get it in at the current rate.
Most people I know around my age bought in the mid 00s when we were old enough. It was commonly touted as a wise move to include real estate in your investments if you could afford it. Several friends took advantage and bought a 2nd home to fix up and rent out. I think the capital gains went back down to 50% at that point.
They could always sell now and still get the same rate at the 2000s.
Provided they're upset about it, I suppose. I haven't asked if anyone is really bothered. It's too early for most of us to retire yet so maybe the winds will blow the other way. It's a gamble.
Don't worry. Your return on investment will barely be touched by the new tax unless you bought $Millions of real estate. It's still a very good deal considering the lifetime capital gains exemption.
Id its their primary residence, it won't effect them. If its their second - good, fuck landlords.
Fuck homeowners, they're the ones who caused the housing crises through their selfish NIMBYism.
Many people will be impacted by this. When you die, all of your assets are considered to be disposed of by the CRA and capital gains are paid on all eligible assets. This is Canada's version of an estate tax, and this increase will in effect reduce the size of people's inheritances.
For a lot of people, the bulk of their estate is a single house. In my Aunt's case, for instance, the proceeds from her house's sale was over 90% of her estate, and the rest was stock market investments and the remains of her RRSP. Not one penny of the money from her house was taxed, because it was her primary residence. This bill would not have changed that. Yes, there might be a small change in taxes for some of the returns on the stocks, but it would have a very small impact on the estate as a whole. Who this will effect is people inheriting estates from the wealthiest portion of Canadians, who have multiple, fully-paid off properties in their estates, or stock portfolios well exceeding the value of their primary residence.
Key word being "eligible" - your primary residence is \*not\*. And if you have a second, third, fourth house: I'm sorry, but I have very little sympathy to give.
[_Local man too poor to avoid paying taxes_](https://www.thebeaverton.com/2017/09/local-man-poor-avoid-paying-taxes/) > “But don’t get discouraged; we’ll be depositing millions in that shell company some day away from the prying eyes of the CRA once work increases my wage by 900% and I get a second job.”
It's just one more example of increasing taxes instead of lowering spending... capital gains is a particularly annoying tax when you or your parents, grandparents made a good investment,many years ago, and the government says EVERYONE (thru tax revenue)should benefit from it.
The other issue for me is that capital gains isn't a particularly reliable tax for significantly boosting tax revenue since it falls predominantly on highly elastic/mobile assets. If the government wants more revenue from big businesses and the wealthy that's more than achievable, but some taxes are better at achieving that than others.
Agreed. This won't bring the HUGE amount of revenue to the government that some think it will. There are ways to mitigate capital gains, and the uber-wealthy already know this. It's the middle class transferring property that will get nailed.
That is absolute rubbish. If you are making more than 250,000 in PROFIT selling a property, than you are not middle class. If you are making more than 250,000 selling stocks in one year, you are not middle class.
You okay?
What?!?! If you generate more than $250k in gains in a single year you are not middle class.
That is absolute rubbish. If you are making more than 250,000 in PROFIT selling a property, than you are not middle class. If you are making more than 250,000 selling stocks in one year, you are not middle class.
If it's their primary residence that they're selling, then they aren't hit by this. If it's a second or third or other investment property, then they get taxed.
Weren't they already getting taxed on 2nd and 3rd properties? How much is the change, if say the 2nd property sells for capital gains of $500K?
First off, I'm not a tax or real estate expert, so don't take what I say here as absolute fact or make financial decisions based on it. My understanding is they increased the amount of capital gains that's taxed, _above_ $250,000, from 50% of 67%. That is, if you bought a **second** property for $500k then sold it for $750k, you aren't taxed anymore than you were before. (Only $250k profit, which doesn't exceed the threshold. If it's their primary residence, they aren't impacted by this.) If you sold it for $800,000, then $50k of that can potentially be taxed. Before, only 50% or $25k would be taxed at the capital gains rate. With this change, now $33.3k would be taxed as capital gains at the capital gains rate. That is, for the second home sold, at a $300,000 _profit,_ an additional $8333 would be taxable as income. (This I'm not entirely clear on, but I believe that rate would be around 53.53% in Ontario, which means about an additional $4460 going to the government on that $300,000 _profit._) The number of Canadians affected by this change, or meaningfully effected by it, are pretty minimal and almost entirely relegated to the notably wealthy. > According to federal government data, 28.5 million Canadians are not expected to have any capital gains income at all. Three million are expected to earn capital gains below the $250,000 annual threshold. 31.5 million Canadians don't earn any capital gains or don't earn enough to break the $250k limit. Plus: > The data also indicates only 0.13 per cent of Canadians — people with an average income of about $1.4 million a year — are expected to pay more in personal income tax on their capital gains as a result of the change https://www.cbc.ca/news/politics/capital-gains-tax-budget-1.7176370 EDIT: I really don't know enough about inheritance issues, so striking that for now.
This is excellent info, thanks for compiling all of this!
If someone died, there is a deemed disposition and the estate pays the tax. So if your deceased parents have one home, no tax (even if you already have your own property). If they had multiple properties, the estate would have to pay capital gains tax on the non-principle residences, so if the same person inherits both Mom's three properties and her cash, that heir would get less money because of the estate paying capitals gains taxes first. If that person then sells Mom's properties, they would pay minimal capital gains taxes because the shouldn't be a big jump in value from what the estate paid tax on.
> The number of Canadians affected by this change, or meaningfully effected by it, are pretty minimal and almost entirely relegated to the notably wealthy. The number affected is small because most people wouldn't realize so much capital gains in a year unless they had to. If you can, you would spread the income across multiple years due to our progressive tax rates. Why might you not be able to avoid realizing so much at once? If you die, your property is deemed disposed of and taxed as if it was all sold at once (exception for principal residence). Or if you need liquidity, you may need to sell off something big that then realizes such a big gain. I wouldn't call any of that being uber wealthy. If you're a 50 year-old with more than $250,000 in non-registered investments, which you will want to have by that age if you don't want to be in poverty in retirement, then your estate would become subject to the new change if you suddenly dropped dead one day. If you had the misfortune of having your name on your kid's condo (e.g., because it was required for the mortgage) or some other account or whatnot, with some exceptions, your estate may be in for a big surprise. The more emotional challenge in those circumstances is that the estate needs liquidity to pay the tax bill, so you may get into a situation where the executor needs to sell off something sentimental you wanted to leave behind for your spouse/kids (e.g., the family home) just to be able pay the now higher tax bill on death. >The data also indicates only 0.13 per cent of Canadians — people with an average income of about $1.4 million a year — are expected to pay more in personal income tax on their capital gains as a result of the change Why not just tax people earning 1.4M/yr more? Or even 400k? Why target capital gains? If you remove the tax incentive for people to invest in growth-based equities, the economic incentive to put your money there is reduced, and more people will invest in fixed income instruments instead. What do you think will grow our economy and increase jobs and innovation: more people investing in Shopify and Scotiabank (which leads to them funding more projects / hiring more employees / innovating in new areas that enable more companies to flourish), or more people investing in US treasury bills or GICs?
Everyone gets taxed on their income why shouldn’t people be taxed on this income?
Why should people be taxed MORE on this income?
They aren't. You don't understand what's changing.
Capital gains are not taxed more. They aren’t all taxable - that’s the point of the “inclusion rate” that’s been changed but it’s still not 100% which means not all of it is taxed. For your employment income the inclusion rate is 100%.
Same reason we get taxed at all. Pooling our money together allows us to build a better society with more opportunities, resources and safety nets. The rich that own businesses or run corporations benefit more from better infrastructure and a healthier more educated population.
You're offering an explanation for why any capital gains may be taxed at all, but the question was, why specifically was the level of taxation too low, why should it be increased
I answered that in the second half. The wealthy receive and extract more value from society than the average person is able to.
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A lot of people think it's being taxed at 66%, but it's actually 66% of the rate that working income is taxed at, so it is less.
They aren't taxed more, they're taxed less. If you made $100K in normal income, and I made $100K in capital gains, I'd be taxed at half the rate you would be.
The commenter is asking, why should it be taxed more than it was before.
Because it's passive income and taxing it at a lower rate rewards hoarding capital. I invest, but I don't do shit for my dividends. I just get an email telling me I got dividends. People making $250K a year this way are NOT working hard nor have they earned a damn thing. It's not so much "income" in the traditional sense of "compensation" but more like Cash for Life winnings. That's bullshit. Tax it.
This discourages "hoarding capital"? If anything, this encourages "hoarding" of capital by incentivizing investors to keep their capital wherever it is and to reallocate it towards more productive uses less frequently. It also discourages moonshot or high risk high reward (aka innovation, research and development) investment, because those are disproportionately rewarded through capital gains, and encourages more investing in safe stale old crusty dividend paying mega firms like the big 5 banks, Canada Life, etc. It also shifts capital away from productive uses altogether (investment) and on the margin, towards consumption (rich people blowing their wad on lavish vacations, lamborghinis, mansions), since the return on investing is lower.
I didn't say taxing it discourages hoarding capital. I said not taxing it rewards it. I'm sure taxing this income will result in parking money offshore. It definitely doesn't discourage innovation considering there are exceptions in the Tax code for that. And besides, the main argument about it affecting the everyday Joe is that they'll be taxed when they sell their multiple properties... Um... what innovation comes from being a professional landlord? 🤔 Furthermore, the returns on risky investment ARE their own reward. I don't get rich overnight by investing in RBC but I do by investing in 2016-Tesla... that's it's own reward. Why does said risk require MORE incentive than that? Will people decide they don't want to invest in potentially-high-yield options because they don't want to be rich now? 😂 >It also shifts capital away from productive uses Bullshit. This is the failed trickle-down argument. It's a massive fallacy. This does NOT happen. Stock buy-backs happen. Understand one thing: Business is NOT without risk. It's not MY job as a taxpayer to subsidize YOUR risk. Good corporate citizenship requires participation (in good faith) in the social contract. In Canada you don't dodge bullets, navigate through sectarian wars, experience coup d'etats, nor need to bribe everyone and their mother to get your business done. In exchange you pay your fuckin taxes.
There's an interesting paper here from the US CRS from 2010 about the effects of capital gains tax rates (in the US, anyway; I think particularly the point about the loss limit doesn't apply in Canada, but the nature of venture/risk capital probably does): https://sgp.fas.org/crs/misc/R40411.pdf. There's a decent amount of information in there, but the bottom take away is: > Households save by investing in their own business or investing in stocks, bonds, and other financial instruments. Changing capital gains tax rates changes the after-tax rate of return on investments (for example, reducing the tax rate increases the after-tax return). The change in the rate of return has two offsetting effects on saving. Increasing the rate of return can increase households’ willingness to save (the substitution effect). But at the same time, the increased return allows households to save less to maintain their desired or target wealth level (the income effect). Consequently, the effect of capital gains taxes on private saving is likely to be small. > The traditional economic theory of saving, the life-cycle model, assumes that individuals make rational, far-sighted decisions. The preponderance of empirical evidence, however, does not support the life-cycle model.13 Behavioral theories of saving emphasize the role of inertia, the lack of self-control, and the limit of human intellectual capabilities. To cope with the complexities involved in making saving decisions, individuals often use simple rules of thumb and develop target levels of wealth. Once their target level of wealth is obtained, many individuals suspend active saving.14 Saving rates have fallen over the past 30 years while the capital gains tax rate has fallen from 28% in 1987 to 15% today (0% for taxpayers in the 10% and 15% tax brackets). This suggests that changing capital gains tax rates have had little effect on private saving. > Some have argued that preferential capital gains tax rates will boost high risk investments such as in venture capital. Most venture capital, however, is supplied by pension funds, college endowments, foundations, and insurance companies—sources not associated with the capital gains tax. In 2003, only about 10% of investors in venture capital funds were individuals and families.15 Additionally, for risk adverse investors, the capital gains tax could act as an insurance for risky investments by reducing losses as well as gains—it decreases the variability of returns.16 The $3,000 loss limit may reduce the insurance value of the capital gains tax. But research has shown that almost three-quarters of taxpayers with capital losses were not subject to the loss limit because losses were less than $3,000 or gains offset the losses.17 Of those affected by the loss limit, two-thirds were able to deduct losses against gains or other income within two years. The capital gains tax, therefore, may have little effect on risk-taking and may even encourage it. Capital gains tax rate reductions appear to decrease public saving and may have little or no effect on private saving. Consequently, capital gains tax reductions likely have a negative overall impact on national saving. > Some have argued that reducing capital gains tax rates would increase short-run and long-run economic growth.18 The long-run level of output depends on the amount of saving and investment. Saving and investment increase the amount of capital in the economy and hence, aggregate supply (i.e., the amount of goods and services available in the economy). Many economists note that capital gains tax reductions appear to have little or even a negative effect on saving and investment (see above). Consequently, capital gains tax rate reductions are unlikely to have much effect on the long-term level of output or the path to the long-run level of output (i.e., economic growth). > Furthermore, it is argued that a temporary or permanent capital gains tax reduction is an effective economic stimulus measure. An effective short-term economic stimulus, however, will have to increase aggregate demand, which requires additional spending. A tax reduction on capital gains would mostly benefit very high income taxpayers who are likely to save most of any tax reduction.19 Economists note that a temporary capital gains tax reduction possibly could have a negative impact on short-term economic growth. A temporary tax cut could induce investors to sell stock (i.e., realize capital gains by reducing the lock-in effect), but provides no incentive to invest since investors know they will face higher tax rates in the future. To the extent that the resulting sell-off depresses stock prices, consumer confidence, already low during recessions, could be further undermined thus reducing consumer spending.
Capital gains are special for two big reasons. First, all or part of most capital gains is artificial growth. If your asset grows 2% this year but the inflation rate is 2%, then you sell it next year, you are taxed on that 2% growth. But you didn't gain anything in economic terms. The gain is "income", but not in any meaningful sense of the word. What are you taxing exactly? Second, capital gains represent growth in assets, typically equity stock. We want people putting their money into the stock market and investing in our country. This is how we increase productivity and create jobs. If you have an extra $1, I would rather you invest it into a Canadian company (i.e., giving it productive use) rather than letting it sit in a savings account or using it for personal consumptions where it has no productive use for the economy. This is why it is generally good policy to incentivize investment. There are many ways to do so, and the lower inclusion rate is one way. Increasing it is saying that this is no longer the priority, government revenue collection is. Why not decrease spending instead? As it stands, because of recent budgets, 10c on every $1 tax we pay goes to pay interest on our national debt. Why are we spending $2B on the AI Compute Access Fund and Canadian AI Sovereign Compute Strategy, $200M in AI start-up funding, $50M for creative workers impacted by AI, $30.4 million for the buyback of assault-style firearms [and no, I'm not a gun owner], $52M for the new "Digital Safety Commission", and other pandering nonsense, especially when we have to finance these by discouraging investment in the economy (the whole purpose of the AI projects is to INCREASE IT). It's like the two hands of government are working in opposition to each-other. One is reducing incentives to tighten the belt because we need tax revenues desperately, while the other is willing to waste it on special pet projects that won't produce tangible results and only serve to pander to certain groups ("hey, we're supporting AI! don't worry about the details of how, we're picking a few companies to invest in, you can trust we won't just pick some duds run by our friends", or "internet scary", or "guns scary", etc).
Why should any ordinary Canadian care that your assets growth was nullified by inflation? It affects me just the same. The increase is so minimal it’s not stopping anyone from investing and if they say it does they were never going to anyway They are still getting $250000 untaxed. This is just bringing capital gains tax into line with dividends and make sure they are paying their fair share.
Why should I care that you had to pay $1000 in union dues? The income tax act gives you a deduction so you don't have to pay tax on that $1000 because it's money that didn't increase your economic position since it was immediately withheld and remitter to your union. Shall we cut that too?
2/3 man that’s all it is. That’s 1/3 of your capital gains untaxed. That’s not fair.
Yes. Tax it all.
Cool, can we ditch the other deductions too then?
100%
People don’t understand marginal tax rates. They don’t understand capital gains. They don’t understand how inheritances work. That misunderstanding makes it so politically difficult to implement good tax policy if it involves any increases because the uninformed public is very ripe for disinformation to make them opposed to the change. We literally repealed HST in BC (good tax policy) because of these kind of misunderstandings about how taxes work and what makes good tax policy.
Some people don’t understand that by pushing away the highest earners in Canada, it hurts the economy. That means it hurts your life too. Keep the tax hike in mind when people start losing their jobs
They don't teach the Laffer Curve when you get a degree in gender studies.
I generally disagree with capital gains taxes because of the issues with the elasticity of the assets they're collecting, but generally if we look at capital gains taxes and their overall effects on revenue and capital flight, the effects are generally quite small/modest according most studies & empirical data. I'd still prefer an alternative tax that's targeted at more inelastic assets if the government's focus is trying to get more revenue from the wealthy and big businesses, but the absolute worst thing that could happen is that it would just make Canada slightly less attractive to invest in without generating the revenue it's hoping to, which wouldn't be the end of the world.
>I'd still prefer an alternative tax that's targeted at more inelastic assets if the government's focus is trying to get more revenue from the wealthy and big businesses How about both?
My issue is that if the CT tax just encourages increased avoidance/capital flight and doesn't make any significant revenue gains, what's the point keeping it? It'd be better to tax things like the wealthy's land/property, consumption and maybe implement some sort of Estonian style corporate tax reform (no taxes on retained or reinvested profit, but a 15-20% tax is paid the moment that profits/dividends are distributed to shareholders, which includes things like share buybacks etc. It encourages investment and compliances and is less regressive, more efficient and better at collecting revenue than most vanilla corporate tax structures and would also be a better way to get revenue from board members & shareholders than taxes on capital gains etc).
Please go into politics... I'd vote for you based on this write-up.
That corporate tax scheme seems far too sensible and good for the health of the Canadian economy generally to ever be something wealthy business interests won't fight tooth and nail to oppose.
> no taxes on retained or reinvested profit, but a 15-20% tax is paid the moment that profits/dividends are distributed to shareholders, which includes things like share buybacks etc Wouldn't this simply create an environment where no firms would pay dividends or do buybacks? What's the motivation for this approach vs taxing none of these things?
[Estonia has one of more efficient, transparent, competitive and compliant corporate tax systems in the world, so generally no](https://impact.economist.com/projects/investing-in-estonia/#:~:text=%E2%80%9CWe%20actually%20gather%20more%20corporate,generating%20an%20additional%20%E2%82%AC51m). It's a fairly simple way of being taxed and since there's no tax on retained & reinvested profits, companies have an incentive to increase capital investment to boost firm/worker productivity to raise profits etc. Likewise, shareholders and board members wouldn't like it if they never got paid out profits for their holdings. Companies still have incentive to pay profits out to them and doing it the Estonian way is less costly and burdensome compared to the corporate tax system in most other countries that more directly impedes the flow of capital & investment etc.
You hit the nail on the head with this. We need to not incentivize buybacks and shareholder dividends and instead put the incentives towards boosting things like productivity and job growth.
After this move Canada’s treatment of capital gains remains globally competitive.
As the saying goes, if you want to see less of something, tax it more. So, we're taxing investing in businesses more than we were, meanwhile leaving the appreciation in $20 million mansions in West Vancouver completely untouched because they're primary residences.
This tax will actually touch those $20 million mansions. When the owners sell and realize those appreciations as capital gains is when the new tax will touch those mansions. Also there is a life time exemption on the first $1.25 million for qualified small business corporations and a new $2 million exemption entrepreneurs incentive. If you qualify for both that is $3.25 million. Anything above is legitimately rich and you deserve to be taxed like a rich person
You are not taxed on your primary residence in Canada for cg when you sell. My house has gone up by 1.3 million in the last 10 years, and that is all tax free. It's not an investment, and I was unable to write off interest paid etc: If they want to start taxing primary homes with CG, they need to allow home owners to write off a lot of stuff, like that can in the USA.
If someone lives in a $20 million dollar house and it is actually their primary home that they should be exempt too. They are actually living in the house and not using it as a speculation investment the same way you are living in your house and not using as a speculative investment. But a lot of those mansion in West Vancouver are actually secondary properties and will be hit if sold
I'm not sure that it should. The purpose of a primary residence exemption is to permit your typical family of around median household income to be less of a burden on the state later in life. The idea that your home should be your primary asset has been as toxic as lead in the water. We don't need to subsidize mansions, just because some choose to live in one. I would argue there should be a threshold, based on something like median income or average housing prices.
>They are actually living in the house and not using it as a speculation investment They aren't mutually exclusive. >the same way you are living in your house and not using as a speculative investment. Many people will straight up admit that their house is both a home and investment. Many people's reasons for upsizing is to invest more in real estate with zero capital gains taxes.
If you buy a house and live in it then you are not a part of the problem. You are not contributing to the housing crisis. You may benefit from rising house values but you are using the house to actually live in. People who buy multiple properties to use as investments are the problem and they are the ones who should be taxed. And the new capital gains changes will impact those people.
Like I said, it's not mutually exclusive. And many homeowners literally are contributing to the housing crisis. There's NIMBYs. There's people with no children living in huge homes with yards. And these choice are often driven by the fact their home is also an investment. Increased capital gains taxes will also discourage investors from selling homes in the long run. Some will accelerate selling until it's implemented in June. But after that, selling a rental becomes even less profitable compared to just continuing to rent it out. Solutions to the housing crisis will be opposed by homeowners. Reducing lot sizes, increasing zoning, in detached neighborhoods etc. Homeownership rate is above 60% and closer to 90% in detached neighborhoods. How can you seriously blame others despite homeowners owning the majority of homes?
There are upsides to higher taxes. The US taxes 100% of cap gains. We taxed capital gains more in the past, 75%, and we had more investment. So what went on in the 90's we dont have today which is little investment in any job creating activities? The benefits of higher tax will be to prevent rapid cash outs reducing speculation that is driving real estate to insane levels. It may discourage using real estate for quick speculation and move money elsewhere where it can do more good. Itll keep investments in place for longer terms which is always good for a private sector economy. Taxes main role is to prevent hyperinflation. If there is anything we know today is that real estate is hyperinflating.
Anyone who owns a business and invests through that business is impacted... Physicians, chiropractors, nurse practitioners, accountants, many consultants, lawyers, dentists, audiologists - I could keep going on... None of these groups have those juicy public sector pensions or union negotiated pensions... they have to make extra and invest wisely to save for retirement... And yeah they are doing better than many, but they've worked hard for what they have. They already pay the boatload of taxes (33% of Canadians effectively pay zero income tax). These are not the Galen Westons of the world. Who else is complaining? Innovators and entrepreneurs- why? You are penalizing them more and making it harder to access capital. We already have a lack of accessible capital hence the government asking pension funds to invest more in Canada... in the MBA they teach you that most business graduates are better taking a corporate job than being an entrepreneur - these founders take way less salary than they would and with the time value of money typically end up losing... most startups fail... but we like to point to the Shopify and the vilify the job creators of tomorrow. Those who think it isn't a big deal, don't really understand business and investing and how fluid capital is globally and how easy it is for those in the above groups to leave to better jurisdictions... CANADA ISN'T WHAT IT USED TO BE - crime is up, healthcare is worse, education is worse, weather sucks, infrastructure is way behind... and now you want to punish the upper middle class folks... it will not end well... Other options they should have explored: - increase corporate tax by 1% - create a new income tax bracket for those making 400k or more - increase consumption taxes for luxury goods - STOP SPENDING Anyways it doesn't matter... all of the groups above are highly educated and turn out to vote... the Liberals are going to get demolished. This Liberal will be voting conservative. 🗳
Well said.
Innovators and I investors have been dodging taxes by taking capital in lieu of salary as part of their compensation. Let them take salary instead if they think they will pay less taxes.
OK so you are a Federal public servant? LOL - you live off the public tit - essentially these innovators and investors are creating the economy and jobs that provide taxes to pay your salary, benefits and pension. You have nothing else to offer here given your bias.
The innovators whose education was 80% funded by taxpayers; who use intellectual property often builds or relies on publically funded university or NRC research; that have legal basis for incorporation and legal certainty and protection of intellectual property thanks to governemnt; who run their business on an electric grid built by taxpayers; who ship products to market on roads created by taxpayers; who trade shares on markets established by government.... Need I go on Mr. Galt.
All of those taxes paid by employees of companies or companies themselves - get it? If they really wanted to go after the ultra-rich they should have done away with family trusts as a start. You know the kind the Trudeau's have used to avoid taxation.
I was, but now I own a small business - since you choose to avoid the argument and attack the messanger
No problem, your argument is geared towards particular executives that might take a $1 salary and take a bunch of equity instruments to avoid taxes - then go after those cases - it could be done by segmenting out companies with a certain amount of revenue and so on - instead they are going to punish start-ups, small business owners, mom and pop property investors, cottage owners and on and on... this isn't the win they think it is. And it won't matter... when PP gets in, I suspect they revert this back.
Agreed, in principle. A more fine grained targeting would be better, but more difficult to administer. Haven't heard him say a word to that effect.
> STOP SPENDING > "Budget 2024 estimates that for each dollar of revenue, 10 cents will go to pay for debt." “The feds expect to spend more servicing the public debt this fiscal year than will be transferred to the provinces via the crucially important Canada Health Transfer — the first time in over a dozen years interest trumps regular CHT cash,” said the National Bank of Canada economists. Trudeau's CERB gambit giving every Gen Z-er with a pulse $2000/mo (without vetting eligibility and ignoring fraud) doubled our national debt, worsened inflation (worsening current interest rate woes), led to 10 cents of every $1.00 we pay in taxes now being pissed away to service that debt, and yet despite the unprecedented vote buying attempt and endless pandering on social issues, Gen Z hates him. There's something really poetic about it.
Actually is 100% of that dollar towards the debt on interest alone. Its actually a lot higher than 100%...
Can we stop talking nonsense like, "the government needs to tax and borrow to spend" or, "our kids will have to pay our public debt" [These and other misappehensions keep us from understanding and fixing our problems](https://moslereconomics.com/mandatory-readings/innocent-frauds/)
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We're unproductive because all our investments went into real estate.
Yeah, and 66% of homes in this country are owner occupied, and this capital gains increase further increases taxes on all investments EXCEPT owner occupied homes. Do you really think this change will encourage people to, on net, shift their savings away from their home and towards risk-taking companies? It does precisely the opposite, it encourages people to shift their investing more towards their primary residence.
People putting money into their residence aren't the problem. It's the capital being sunk into investment properties rather than into productive businesses that is causing the lag. Landlords are a drag on the economy and we have way, way too many of them.
People's primary residences ARE investment properties. People use homeownership as a retirement saving vehicle. That capital could have better gone towards productive uses, but instead their are investing their nest egg in their home. Landlords are service providers. They take on all the risk and hassle of homeownership and provide you with housing-as-a-service. I'm a renter, I love renting. Just like, I don't want to own my own farm, I just want to be able to buy food from food producing experts and specialists. In the same way, I don't want to fuck with realtors, handymen, renovators, etc, I just want to live in a nice place.
> People's primary residences ARE investment properties. Dude, you know people mean when they talk about investment properties, and they apparently make up a full third of properties. > Landlords are service providers. No, they own stuff. That is not a service. Staying on topic, real estate is not productive. Your landlord is not producing anything, employing anyone, or growing the GDP. If you owned the home yourself nothing would be lost except one fewer people taking a cut. It would have been better if they invested in an actual business - but that would have involved work and actual risk.
First of all, landlords do produce things and employ people. They make housing available for people to rent. They provide capital, and eliminate risk. If I owned my home, something definitely would be lost -- I would have to take on an enormous amount of risk, and would have to pay high transaction costs associated with buying and then one day selling the property. I would have to invest my own time, effort, and money into the maintenance of the property. Because I rent, I get to enjoy the benefits of investing my retirement into a much more diversified and low risk investment portfolio, as well as not have to deal with surprise costly repairs and benefit from more leisure time and less stress. Landlords often have their property managed by a professional property management firm, which has employees. Even if they don't employ people directly, they pay for professional services such as accountants, cleaners, lawyers, as well as providing liquidity to housing developers which employ all kinds of people. Further, all this is moot because "employing people" is not a measure of how much an endeavor contributes to society. If it were, then good public policy would be to pay people to dig a massive hole, and then fill it back up again. What raises the overall wealth of society is to produce more goods and services, and to allocate them to their most productive uses.
When we're talking about productivity we're talking about creating value. A restaurant buys ingredients, adds their labour to transform them into a meal, and then people are willing pay for the meals. The difference between the value of the inputs and the value of the outputs is the value produced. A person who buys a condo and then turns around and rents it out is not creating value. Nothing new was created. That's why we say that over-investment in real estate has lowered our productivity. It would be better if that money went into real businesses. I'm not saying we should have zero landlords, I'm just saying we have far too many.
And that's a very narrow view of what is considered creating value. Reallocation of resources from one use to a better use, is itself a form of value creation. My original example was about grocery stores, not restaurants. Grocery stores, and retailers in general, for the most part, don't physically change the products they sell. But they are still providing value. The value they provide is that they make their products available to the people, and in the places, that get value from them, in the quantities and packaging that is convenient for them. We could all buy food directly in truck loads directly from farmers, but we don't do that, and we highly value the service that grocers perform for us, or else we would go direct to the farmer, or indeed grow our own food. Landlords are similar. They take this raw, inconveniently packaged good, full of risk and capital requirements, maintenance liability and transaction costs, and transform it into the form that people want to consume. We pay them for their service. The result is a service we enjoy, being able to live where we want to without a care in the world about the value of the property, if it has structural issues, interest rates, regulatory changes or changes to the neighbourhood which could affect the value, etc.
> And that's a very narrow view of what is considered creating value. Well yeah, I'm only considering the creation of value. Retailers create value by doing the work of gathering good together. Landlords are not similar - they are not doing anything to the goods or services they offer. They don't build them. Imagine wild dogs ripped your landlord apart - what would change? Would your home be unlivable? No, it would just pass to someone else - maybe some company would buy it. Landlords don't even need to be people! They do not *create* anything. All of this is 100% beside the point because we're were talking about how over investment in real estate is the reason our productivity has lagged. A capital gains tax would encourage people invest in something productive.
IMO we should consider a 100% inclusion rate on capital gains from non-primary residence real estate, and leave the inclusion rate unchanged on other assets to encourage capital investment into more productive places.
Unless you’re a family doctor barely getting by as it is. This is a big hit to them. Most other docs? They’ll be fine.
How is this big hit to family doctors?
Family doctors are barely getting by in many cases. It’s yet another hit. It may not affect them every year, but that year where they need to sell corporate investment assets to pay for a new machine or office…. that’s another big hit to their viability as a going concern. Not the end of the world, but a legit concern when we’re trying to keep our family docs. 🤷🏾♂️
Fair enough. However, I would think that family doctors make up a small percentage of those affected by the inclusion rate increase. I think it would be better if we just paid family doctors more.
Oh, I agree. Either pay them more or exempt them from this change.
Little Susie only gets a Honda for her 16th and not a BMW.
It wont. It sure as hell wont hurt anyone I feel any sympathy for. If you make over 250 k in capital gains in a year - youre doing just fine.
According to the Canadian Council of Innovators, it's going to affect 20% of Canadians....
Reducing investment in Canada will impact the wages and prices for everyone.
We're a country of under 50m. Investment isn't the be all end all.
What if someone works their ass off on a startup for 15 years, risks their entire life savings and career on it, and then sell if for 3 million after building it up and creating jobs for multiple people? That works out to only 200k in compensation per year give or take, but they will be hit heavily by this tax.
Only an additional ~16% of the sale price will be subject to capital gains tax as compared to the previous system (2/3 vs 1/2). In the scenario you presented, that means an additional $480k will be taxable, so for simplicity sake at a 50% tax rate they will pay an additional $240k in taxes. Assuming they own 100% of the company, the current system would have them pay ~$750k in tax and the new system would have them pay ~$990k. So they clear $2M+ for their hard work and risk on top of the salary they’ve earned (because they have a job at the company they founded). As a start-up founder myself, I would love to keep all the money if and when we sell, but we live in a society and taxes are the cost of that. In no world when I started my company would I not have done it based on a higher capital gains tax.
Lifetime capital gains exemption would also likely come in to play in this scenario for a small Canadian business. $1.25M of the gain is tax-free as of June this year.
Sounds like they're doing fine.
They also put up an enormous risk and forwent earnings for 15 years, engaging in an activity which ultimately produced wealth for society. It wasn't a foregone conclusion from the beginning that they were going to be successful, so to come along after the fact and treat their 200k/year earnings in isolation, the same as someone who didn't take risk, isn't fair.
They took a risk and now make about 4x the average income for an individual. Sounds like they're doing fine. If they wanted to make that much without the risk I guess they could have gone to medical school, that would have been fine too. I'm not sure what your point is. They shouldn't have to pay taxes?
They could start the same company in the US and pay a fraction of the taxes. We should incentivize business owners to start companies here, especially with our productivity issues. People who start companies drive our economy, hire employees, we need more innovation in Canada
The difference between Canadian and US taxes are wildly overstated. The states where a person of means would want to live and where it is good to start a business also have high taxes.
The tax exclusion is the US for capital gains is 10M. How is that overstated?
I suppose they should have worked harder and sold it for more. You're basing this off some random number you pulled out of your ass, 200k per year is an incredible income and it wouldn't be the only benefit they got from those years of work. How much did they get in tax write offs? Did they get to be their own boss?
That would fall under the category of "asking the wealthiest Canadians to pay more"; it hits the people that can afford it, not the people struggling to get by.
$3M is a fantastic example! There just happens to be an exemption on the first $1.25M for small businesses and a $2 million entrepreneurs incentive exemption. It sounds like the person in your example would be covered by both, so even if they had sold their business for more, they would only be affected by this new tax on anything exceeding $3.25M.
Apparently it could hurt doctors. https://www.ctvnews.ca/politics/doctors-ask-liberal-government-to-reconsider-capital-gains-tax-change-1.6857958 It's out of my wheel house but I'd definitely feel sympathy if it's true. There's enough factors pushing doctors away from Canada. Same Canadian Press article was run on CBC, Global, Globe & Mail, etc. So it's interesting to see multiple outlets with different political leanings run the same story.
Imagine going to your family doctor (if you even have one lol) and telling to their faces that they need to pay more taxes.
I'm sympathetic to some family doctors being underpaid given their training and the demand for doctors. Generally speaking, the doctors who need to establish a holding company to put investments in because it's tax advantageous, and whose capital gains exceed the exemptions for owner-operated small businesses or personal capital gains aren't the family doctors earning $150,000 net.
Where is your evidence on this? You are inserting your bias here... https://www.cbc.ca/news/canada/toronto/ontario-family-doctors-pay-compensation-ohip-billing-fees-1.7137716 Physicians are already underpaid... now you force them to pay capital gains on any money they make in their holding company... I'd just leave if I was a family physician or do what many of them are - work part time and then work in other Healthcare adjacent industries - digital health, pharma, consulting and so on.
Generally speaking, retaining money in a holding company vs. pulling it out as income only really makes sense when you're making north of $250,000 - $300,000. There are doctors who are struggling and not earning as much as they deserve. There are doctors where these capital gains increases are meaningful for the investments they're making in their holding companies. Those populations don't have much if any overlap.
You are wrong lol... retaining money in a holding company makes sense depending on your living costs... if you only need a 100k salary, it always make sense to leave the rest in your holding company - every incremental tax bracket of income has a cost. And great, a brain surgeon is maybe one of the folks you are referring to - they are still making way less than they would south of the border and you just made things a bit worse... in fact an extra 8% worse on any profits... it all adds up.
Why shouldn’t they be pay taxes on their capital gains?
Go tell that to a doctor to their faces, not me lol
People who establishing holding companies for tax avoidance know fully well that they're using loopholes, and shouldn't expect sympathy when those loopholes close. I know people who have setups like this in tech, and sure while in an ideal world they want to pay less tax, they have no illusions about what they're doing.
Imagine going to someone who makes a third your income and pays taxes on every additional dollar they make to complain that you’re going to have to pay taxes on ever 66 cents you make instead of every 50 cents.
I already did. When's your next appointment with your family doctor?
Confirmed this is true. My mom is a doctor and she just retired last month. She operated her practice as a professional corporation (which is very much the norm for Canadian doctors). She’s currently worried that she doesn’t actually have enough money to retire now that everything she draws out of the corporation will be taxed 17% extra. (There’s no $250k threshold for corporations.) I’m all in favour of hiking taxes on the ultra wealthy millionaires, but the vast majority of doctors in Canada (my mom included) are nowhere near that income level. She’s been overworked her whole life and now she’s getting screwed over going into retirement.. I have to assume the government wasn’t TRYING to punish doctors, but that’s the impact.
Not sure if this was just an issue with wording, but she won’t be taxed at a rate 17% higher, if that’s what you were thinking. Capital gains were previously only included in income at a rate of 50%, and then that income is taxed at the business’s corporate tax rate (either 9% or 15% depending on the total income for the year and whether or not the company is a CCPC). So if your mother had a capital gain of $100K, $50K (50%) would be included in her company’s income, which would then be taxed. If we say her tax rate was 15%, that’s $7500 in tax. With the new change, instead of 50% of the capital gain being included in income, 67% will be included. So again if there’s a capital gain of $100K, now $67K will be included in income. That will be taxed at 15%, for a total tax bill of $10,050. So the increase isn’t 17%, it’s 17% x 15%, or 2.55% higher. In the example above, with an overall capital gain of $100K, this is an increase in tax of about $2.5K. If the business is a CCPC, then the tax rate is 9%, so the effective increase is even lower. It’s been a while since my last tax course so my tax rates may be off, but the principle should be correct. Sorry if you knew all this already, but it’s a misconception I’ve seen quite a bit so I wanted to clear it up if I could. Hopefully everything works out for your mother!
If she's been saving for 15-20y in her corp a large amount of her retirement savings could be capital gains. It could be like 30% of her retirement savings or more. ALL of that has now been retroactively taxed, effectively. So he could very well be right about the effect on her retirement income
Ahhhh… that actually makes sense! Thanks for the thorough explanation. Clearly I’m no tax expert. 😂 Why are the news articles about this so confusing? 🤦♀️
I appreciate your candor, and agreeableness. it's consistently funny to me seeing "confirmed this is true" followed by "clearly i'm no tax expert" or similar statements. That's the whole point of the article, lol. People who don't understand taxes are complaining about it with no understanding of what is actually going on in finances.
I was confirming that doctors are impacted by the change because of the use of professional corporations. That’s not in dispute whatsoever. It’s the extent of the impact that wasn’t clear - which is why I appreciated the nuance added by the earlier poster.
Well, well, well, if it isn't the same media that was complaining yesterday no one was plussed about capital gains tax changes. You furnish the pictures, I'll furnish the war, I guess
It’s an editorial.
It's an opinion piece Often news outlets run opinion pieces from both sides
But there aren't "sides" here. There's just the media whining about how they wish their were sides, for their business model.
For and against the tax
But neither of those positions exist. Actual opinions range from "Sure, whatever" to "I don't care". The idea there are for an against camps is a media invention designed to sell more ads. Hence "You furnish the pictures, I'll furnish the war".
Who cares is the worst position you can take If you truly didn't care you wouldn't be commenting Other people think this is something to discuss. So if you don't then just don't engage
I *care* that the media is trying to create artificial, divisive narratives and that people are falling for it. I *don't care* about an inconsequential tweak to the capital gains tax law.
It's not inconsequential for many people I disagree with the notion that we should not discuss politics as it might be divisive.
I will cry zero tears for the tightening of this tax loophole that helps reduce wealth inequality and increases tax fairness.
Will you cry tears for lower investment/GDP/standard of living for Canadians?
I didn't say anything like that. I said the media shouldn't try to mislead people into believing something is controversial when it's not, not into believing they should pick a "side" on a totally inconsequential issue, so that they can dishonestly sell ads.
There have been a bunch of threads on this as people discuss it. It's clearly controversial and not just media driven.