Canada Proposes Hike in Capital Gains Tax to 66.7%

Capital Gains Tax Hike in Canada Raises Concerns

The recent federal budget has sparked a significant conversation around the proposed changes to the capital gains tax in Canada. The government’s plan to increase the capital gains inclusion rate from 50 percent to 66.7 percent for dispositions effective after June 24, 2024, has been met with mixed reactions.

While the budget introduces a 50 percent inclusion rate on the first $250,000 of annual capital gains for individuals, this concession does not extend to corporations and trusts. This discrepancy has led to concerns about the undermining of the integration principle, which aims for investment neutrality whether held directly by an individual or through a corporation.

Moreover, the Canadian Entrepreneurs Incentive (CEI) and the capital gains exemption for transfers to an Employee Ownership Trust (EOT) have been criticized for their restrictive eligibility criteria and potential commercial risks.

The government’s strategy appears to be encouraging Canadians to realize their gains before the new tax rates come into effect. However, this has raised questions about the long-term fiscal implications and the potential for driving investment away from Canada.

Entrepreneurs and investors are particularly concerned about the increased tax burden on their ventures, especially given the illiquid and risky nature of many investments. The possibility of higher taxes on capital gains could deter investment in Canadian businesses, impacting the country’s productivity and economic growth.

Additionally, the impact of the proposed tax changes extends beyond corporations to individuals owning private corporations, public corporations, and real estate properties. The increased inclusion rate could lead to a heavier tax load on realized capital gains, affecting dividend distributions and potentially exceeding the $250,000 threshold upon events like death or becoming a non-resident of Canada.

The capital gains tax Cyprus model and tools like the Cyprus capital gains tax calculator may offer insights into alternative approaches to capital gains taxation that could be considered by Canadian policymakers.

Experts like Kim Moody, a prominent figure in the Canadian tax community, have voiced their concerns over these changes. They argue that while the government may see a short-term increase in tax revenues, it could be at the cost of long-term economic stability and growth.

As Canadians and businesses navigate these proposed changes, many will be closely monitoring the government’s next moves regarding capital gains tax policy.