Watch closely. That’s what Finance Minister Chrystia Freeland wants Canadians to do, as parties vote this week on the government’s proposal to increase the capital gains inclusion rate in the House of Commons. The proposal will hike the inclusion rate from 50 per cent to 67 per cent for individuals earning over $250,000 in capital gains in a given tax year, and for capital gains realized by many corporations and most trusts.
“We do think this is an important time for our country. It’s an important time because we need investments and it’s an important time for us all to take a stand,” Freeland said on Monday. “Canadians should be watching closely what happens in the House and watching closely to see how all MPs vote on this.”
Normally, all budget measures are presented as a package and considered a confidence vote. But not this time. The government separated this measure from the general budget implementation bill for a reason: to force the Conservatives, and most notably, their leader, Pierre Poilievre, to declare whether they support increasing taxes on the wealthiest Canadians.
But is that what this measure actually does? When the government announced the increase to the inclusion rate, it said it would only affect the uber rich. “Only 0.13 per cent of Canadians with an average income of $1.4 million are expected to pay more personal income tax on their capital gains in any given year,” budget documents claimed. Around 13 per cent of corporations would also be affected.
The key here, however, are the words “in any given year.” Those 0.13 per cent of Canadian that realize capital gains over $250,000 in a given year may not earn $1.4 million in “income” year over year. They may be middle-class people selling the family cottage: not necessarily a palace, but a waterfront cabin that has nonetheless grown in value over time. Canada’s parliamentary budget officer, Yves Giroux, pointed out that in the current housing market, it is not uncommon to see capital gains exceeding $250,000 on the sale of rental properties or cottages.
As for the businesspeople the tax hike is targeting, they aren’t all titans of industry. Some are doctors selling their practices to fund their retirements. Others are entrepreneurs who took the risk to found a startup, saw it succeed and now want to use the proceeds for their next venture. Industry groups and business leaders warn that the change could stifle economic growth, discourage investment and negatively impact future generations — the very Canadians that the Liberals’ gen-Z-friendly budget purports to help.
All of those people will be caught by the changes, and all of them are hopping mad. Business groups are howling about the impact on investment and productivity. Medical associations commissioned a poll, which found that 60 per cent of Canadians think the changes will make it harder to find a family doctor.
But more significantly for the government, people like my decidedly non-uber-wealthy neighbour are angry, too. Said neighbour inherited a family cottage that her kids may not want, as is frequently the case. A sale would generate over $250,000 in capital gains, which would help fund her retirement since she does not have a workplace pension. She told me she will vote for anyone who opposes the capital gains tax change, and that lots of people she knows will, as well — including traditionally Liberal voters.
A spokesperson for the Conservative party has not said how its MPs will vote, only that, “Common sense Conservatives will study the motion very carefully before determining next steps.” By that, he likely means that backroom strategists are furiously crunching the numbers, calculating what the upsides are of supporting versus opposing the change.
So while Freeland exhorts Canadians to watch closely, she should be careful. With approval ratings for this government, and the prime minister, at an all-time low, Canadians may not buy the line that this is a necessary “soak the rich” measure. Rather, it’s a tax grab to fund the profligate spending of a government that is past its best before date. In Freeland’s effort to trap the Conservatives into becoming “friends of the rich,” she may end up hoisting the government on its own petard.
Postmedia Network
Tasha Kheiriddin is Postmedia’s national politics columnist.