Trudeau Defends Capital Gains Tax Increase Amid Growing Criticsm

Prime Minister Justin Trudeau speaks during a press conference regarding Canada's new defence policy at CFB Trenton, in Trenton, Ont., on April 8, 2024. The Canadian Press/Sean Kilpatrick

Prime Minister Justin Trudeau is pushing back at growing criticism of his government’s move in the 2024 federal budget to raise the capital gains tax.

Mr. Trudeau defended the tax hike as fairness for younger generations when asked by reporters in Saskatoon, Saskatchewan, on April 23 about statements made by former Liberal finance minister Bill Morneau a week earlier.

The rise in the capital gains tax is a threat to investment, Mr. Morneau had said on April 17.

Currently, only 50 percent of any capital gain is taxable in Canada. The proposed tax hike will see individuals 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. For corporations and trusts, the capital gains tax is increasing from 50 percent to 66.7 percent on the entire gain.

Mr. Trudeau told reporters the changes are aimed at helping younger generations.

“We’re doing it by asking people who are the absolute wealthiest in this country to contribute a little bit more,” he said. “I understand for some people, this may cost more if they sell a cottage or a secondary residence. But young people can’t buy their primary residences yet.”

The Canadian Medical Association (CMA) has also raised concerns. 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 association said.

The CMA added that the changes could even jeopardize ongoing efforts to recruit and retain medical professionals across Canada.

In response to a reporter’s question on the CMA’s concerns, Mr. Trudeau said he felt it was unfair for students or electricians 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,” he said.

Regarding Canadians who use investment properties to fund their retirements and who could face higher taxes due to the proposed changes, Mr. Trudeau said the tax increase will not affect primary residences.

“At a time when young people have started to give up on the dream of eventually ever being able to own a home, it was really important to rebalance the situation,” the prime minister said.

‘This Will Stifle Growth’

Mr. Trudeau’s comments came amid his efforts to frame the capital gains tax increase as intergenerational economic fairness while facing resistance from various groups.

Over 1,000 CEOs and Canadian tech business leaders signed an open letter to him calling for a halt to the tax hike and warning that it could harm economic growth.

“Anybody with experience in entrepreneurship and investment can see how this will stifle growth,” the letter said.

The capital gains tax increase is set to be deferred for two months and will not come into force until June 25, a move Budget Officer Yves Giroux called surprising.

“Cigarette taxes, the increase came into effect immediately, so we don’t want people to rush to the convenience store to buy cheaper cigarettes,” Mr. Giroux told the House of Commons finance committee. “But capital gains, we don’t mind giving two months’ heads-up to those who could rearrange their affairs so that they can escape the higher capital gains rates.”

“For the capital gains, it’s very likely to lead to a phenomenon where people will sell some assets before June 25 so their capital gain is all included at 50 percent rather than the higher two-thirds rate,” he said.