Canada will raise capital gains taxes on businesses and wealthy individuals to help pay for tens of billions in new spending aimed at making housing more affordable and improving the lives of young people.
Finance Minister Chrystia Freeland said the government will tax Canadian companies on two-thirds of their capital gains, up from half currently. That change will also apply to individual taxpayers when they have gains over $250,000 in a year, though people will still be able to sell the homes they live in tax-free.
In prepared remarks to lawmakers, Freeland said the job of Canada's tax system is to combat "structural inequality," adding that by increasing the tax rate on investment gains, she was merely "asking those who are benefiting from the winner-takes-all economy to pay a little bit more."
Prime Minister Justin Trudeau's administration has been sinking in opinion polls, which show that he's losing younger voters who are frustrated about the high cost of housing. The benchmark home price in Canada has gone up about 60 per cent since he took office and apartment rents have also surged — forcing the government to begin rolling out programs to try to speed construction and alleviate the cost crunch.
Overall, Freeland's new budget shows a government squeezed between those spending demands, higher borrowing costs and its commitment to keep the deficit — expected at $39.8 billion this fiscal year — under control. Trudeau and Freeland are now turning to the richest Canadians and corporations to help foot the bill.
The capital-gains inclusion rate hasn't been this high in decades in Canada. The government expects the hike to generate $6.9 billion in the current fiscal year, partly because some investors and businesses will rush to sell ahead of a June 25 deadline to avoid the higher tax rate.
"It may reduce the incentive for companies to invest," said Charles St. Arnaud, chief economist at Alberta Central. "While the tax changes are marginal, they have the potential to impact the perception of Canada's business environment."
"In thinking about raising revenue, we thought very, very carefully about the investment climate," Freeland said. "That is one of the principal considerations in my mind, one of the main things that the government is focused on and thinking about. I am confident that the measure that we are putting forward today will not have a negative effect on business certainty."
Ottawa hikes capital gains tax to raise billions for housing
Ottawa will raise capital gains taxes on businesses and wealthy individuals to help pay for billions in new housing spending. Find out more.
financialpost.com