The federal government isn’t changing the broad strokes of its capital-gains tax hike, Finance Minister Chrystia Freeland says, despite a pressure campaign from the country’s top business groups and lead medical association that say the reform will hurt the economy and drive doctors away.
In a Sunday speech at a Toronto YMCA outlining the political argument for the tax hike, Ms. Freeland described the $19.4-billion revenue boost, over five years, as one that the rich can afford and that must be done to help everyone else.
The government will only detail the specifics of the policy in a motion in the House of Commons on Monday. It will take effect on June 25.
In some of her most charged comments yet, Ms. Freeland warned Canada’s top 1 per cent of dire consequences if additional spending on housing, a school food program and contraceptives doesn’t get funded in part through the tax hike.
“Do you want to live in a country where those at the very top live lives of luxury, but must do so in gated communities behind ever higher fences, using private health care and airplanes because the public sphere is so degraded and the wrath of the vast majority of their less privileged compatriots burns so hot?” the Finance Minister and Deputy Prime Minister said.
Ms. Freeland’s arguments signal that the government isn’t making changes to the plan that sparked swift condemnation from groups opposed to the tax hike.
The Canadian Medical Association said the change will worsen the doctor shortage. The Canadian Federation of Independent Business said the policy appeared to be “more about politics than tax fairness.” And the Council of Canadian Innovators posted a statement on social media, describing Ms. Freeland’s 15-minute speech as a “political diatribe” and an attempt at “class warfare from a desperate government.”
A capital gain is the profit an individual or a business makes when they sell assets such as stocks or investment properties. As it stands, only half of all capital gains are subject to taxation. The April budget proposed increasing the inclusion rate to two-thirds for capital gains earned by corporations and trusts. The higher inclusion rate would also apply to capital gains of more than $250,000 a year earned by individuals.
Individuals such as doctors who operate their practices through professional corporations, and use tax strategies that turn normal income into capital gains, won’t benefit from the exemption for the first $250,000.
On Sunday, the Canadian Medical Association said it was “deeply disappointed” that the government is going ahead with changes “that will add undue pressure and financial strain on physicians, undermining the stability of our health care system.”
Asked about the concerns raised by doctors, Ms. Freeland said the policy will follow the “broad outlines” of the tax hike as detailed in the April budget. She reiterated her position that the tax hike is a “plan for tax fairness.”
The Canadian Federation of Independent Business had asked the government to extend corporations the same $250,000 carveout that it granted individuals. Based on Ms. Freeland’s comment, chief executive Dan Kelly said he believes the government made no major changes.
He criticized the federal government for taking almost two months to release the details of the plan, further limiting the choices available to businesses, given that the tax hike takes effect in two weeks.
According to numbers in the budget, around 40,000 individuals – only 0.13 per cent of taxpayers – are expected to make more than $250,000 in capital gains next year. The implication is that the higher inclusion rate won’t affect personal income taxes for the other 99.87 per cent.
But by only looking at one year, the budget undercounts the number of people who may receive more than $250,000 in capital gains on a one-time basis. This could happen, for example, if someone sells a cottage or investment property, which is not exempt from capital-gains taxation the same way primary residences are.
The changes will also affect tech entrepreneurs and venture capitalists, who earn most of their money founding and selling businesses.
“The government is undermining the very foundations of entrepreneurship, risk-taking and innovation that drive our economy forward,” said Kim Furlong, CEO of Canadian Venture Capital and Private Equity Association.
The Canadian Chamber of Commerce said the country’s tax system has “become a complicated, politicized web of carve outs and caveats” and urged an independent review of the entire regime.
The Conservatives have not yet said how they will vote on the tax hike, while the NDP say they support it in principle.
According to a Nanos Research poll, Canadians are divided on the proposed tax hike, with 38 per cent saying they think it is fair, and 45 per cent saying they think it will weaken the economy. A further 17 per cent said they were unsure.
The telephone poll was conducted between April 28 and May 1, with 1,086 respondents. It has a margin of error of three percentage points, 19 times out of 20.
