Prominent business associations in Canada are asking Ottawa to scrap its plan to raise the tax inclusion rate on capital gains, calling the measure “shortsighted.”
The groups are calling on the government to reverse the decision to hike the capital gains tax inclusion rate to 66.7 percent on all profits surpassing $250,000.
The letter was also signed by the Canadian Manufacturers and Exporters, the Canadian Venture Capital and Private Equity Association, the Canadian Franchise Association, and the Canadian Canola Growers Association.
Ms. Freeland announced the government’s plan last month as part of budget 2024 to tax Canadian companies on 66.7 percent of their realized capital gains, up from the current 50 percent. Individuals will pay tax on 50 percent of the first $250,000 of capital gain earned in the year, but 66.7 percent of any gain above that threshold under the new system.
Ottawa has maintained the changes would only impact 0.13 percent of Canadians and 12.6 percent of businesses.
The business groups disagreed in their letter, saying raising the tax inclusion rate on capital gains will have a domino effect on Canadians. The groups said one in five Canadian companies “are likely to be directly impacted” by the tax hike over the next decade and the effects of that “will be borne by all Canadians, directly or indirectly.”
“This proposed tax hike will only serve to undermine the government’s stated policy objectives: bolstering health and dental care for Canadians, attracting and retaining skilled professionals, increasing investment and innovation, and helping small businesses thrive,” the letter reads.
“If enacted, this change will have significant knock-on impacts, including making it harder for Canadians to access medical practitioners, limiting employment opportunities, and making the prospect of starting, growing or succession planning a business more difficult especially for multi-generational businesses such as farms, fisheries and small businesses.”
CFIB president Dan Kelly said it’s not just large corporations that are worried about the impending changes. Seventy-two percent of small business owners polled by the CFIB have said the proposed changes to capital gains taxation will “harm Canada’s climate for investment and growth.”
“The proposals in the federal budget have huge potential consequences, and many small business owners are feeling forced to make important decisions with little time and very few details,” Mr. Kelly said in a May 9 press release.
“It is outrageous that the federal government has not yet shared draft legislation to allow small business owners and their advisors to understand the full implications of the capital gains changes.”
Policy Pushback
Ms. Freeland and Prime Minister Justin Trudeau have also faced pushback about the policy from the Canadian Medical Association (CMA) who has said the changes will “have significant negative implications” for doctors because most operate their practice as small businesses and rely on their professional corporations to save for retirement.The prime minister has defended the tax hike, saying it is being implemented to help younger Canadians.
The capital gains tax hike is expected to put $19.4 billion in revenue in government coffers over a five-year period, according to federal estimates.
The prime minister has said it is “unfair” for students to pay taxes on 100 percent of their income while others pay taxes on only 50 percent.
“So yes, we are asking the most successful in this country to do a little bit more to make sure that everyone can see themselves in the success of this country,” Mr. Trudeau said at a recent press conference.
“We’re … asking people who are the absolute wealthiest in this country to contribute a little bit more.”
