Liberal government takes first step toward changing capital gains tax
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Finance Minister Chrystia Freeland has taken the first legislative step toward implementing her government’s proposed changes to the capital gains tax.
The ways and means motion, the first stage before legislation is tabled, was introduced in the House of Commons on Monday. It’s expected to be voted on later in the week.
The increase in the “inclusion rate” — from one-half to two-thirds on capital gains above $250,000 for individuals — was announced in the budget.
Freeland said Canada needs the revenue from the change to the capital gains tax to invest in things like pharmacare, dental care, child care and the green energy transition.
“The fair way to finance them is with tax fairness. That’s what we’re doing,” she said.
After announcing the tax change, the Liberal government separated the measure from its budget implementation bill and promised to introduce a bill that will require its own vote.
“I do think this is a moment when Canadians should be watching closely what happens in the House and watching closely to see how all MPs vote on this,” Freeland said.
Finance Minister Chrystia Freeland says an upcoming vote on the Liberal plan to change how capital gains are taxed is a ‘defining’ measure and – and she wants Canadians to pay attention to how MPs vote.
Conservative Leader Pierre Poilievre’s press secretary Sam Lilly issued a statement saying the capital gains changes are “a tax on health care, homebuilding, small businesses, farmers and people’s retirements.”
Lilly said the measure is being introduced to pay for the “inflationary spending announced in the latest budget.”
“Conservatives will study the motion very carefully before determining next steps,” he added, when asked how the party will vote on the measure.
Provinces should pay doctors more: Freeland
Since it was first announced, a number of groups have expressed concerns about the increase to the inclusion rate. Some doctors said the tax change could undermine efforts to recruit and retain physicians.
The Canadian Medical Association (CMA) has said doctors will be hit particularly hard by the hike because they often incorporate their medical practices and invest for their retirements through their corporations.
Canada is facing a severe doctor shortage. An estimated 6.5 million Canadians are going without access to primary care as family physicians retire en masse and medical schools struggle to recruit new residents to replace them.
Prime Minister Justin Trudeau dismissed a request from the CMA for an exemption.
Canadian Medical Association president Dr. Kathleen Ross tells Power & Politics that she fears changes to the capital gains tax will make recruitment and retention of physicians more difficult at ‘a time where the health force is beleaguered, mothballed and really struggling to deliver on services to Canadians.’
On Monday, Freeland described doctors’ ability to pay themselves through corporations as a “tax advantage not available to many Canadians.”
She said that the change to capital gains will result in about $12 billion in additional revenue for provinces and territories.
“Provinces and territories should be using some of that revenue to increase the actual salaries, the rate of compensation of doctors,” Freeland said.
Last week, a coalition of Canadian agricultural associations signed a letter asking the federal government to abandon the change to the capital gains tax, among other measures.
The Canadian Federation of Independent Business said that 72 per cent of its members oppose the change and believe it will harm investment.
A capital gain is the difference between the cost of an asset — an investment property, a stock or a mutual fund — and its total sale price. Right now, only 50 per cent of capital gains are taxable.
Once the changes are implemented, 50 per cent of the first $250,000 in capital gains an individual taxpayer earns will be taxed. For every dollar beyond $250,000, two-thirds will be taxable.
The budget proposes to tax all capital gains earned by corporations and trusts at the two-thirds rate.
While the legislation is still several steps away from passage, the increase to the inclusion rate will take effect on June 25.
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