Liberals raise capital gains tax on wealthiest Canadians to pay for agenda
Finance Minister Chrystia Freeland delivered a federal budget Tuesday that keeps the deficit capped at $40 billion, thanks to higher-than-expected government revenues and new taxes that largely offset billions in new spending.
Freeland presented the federal budget in the House of Commons in the afternoon, which pledges $53 billion in new spending that she says is focused on economic justice for younger generations.
“We are moving with purpose to help build more homes, faster. We are making life cost less. We are driving the kind of economic growth that will ensure every generation of Canadians can reach their full potential,” said Freeland in her opening remarks in the House of Commons.
The Liberal government plans to pay for most of its new spending initiatives with higher taxes on the wealthiest Canadians and businesses, and from strongerthan-expected government revenues.
The budget proposes to increase the capital gains inclusion rate, which refers to the taxable share of profit made on the sale of assets.
The taxable portion of capital gains above $250,000 would rise from half to two-thirds, which the federal government says will only affect 0.1 per cent of Canadians and raise nearly $20 billion in revenue over five years.
All capital gains realized by corporations and trusts will face the two-thirds inclusion rate.
“I know there will be many voices raised in protest. No one likes paying more tax, even — or perhaps particularly — those who can afford it the most,” said
Freeland.
“But before they complain too bitterly, I would like Canada’s one per cent — Canada’s 0.1 per cent — to consider this: What kind of Canada do you want to live in?”
Dan Kelly, president of the Canadian Federation of Independent Business, said an early assessment of the tax changes to capital gains will see most small businesses better off.
That’s because the government increased the lifetime capital gains exemption from around $1 million to $1.25 million, which means Canadians can exempt capital gains up to that amount on the sale of small business shares and farming and fishing property.
The government is also proposing the Canadian Entrepreneurs’ Incentive, which will reduce the inclusion rate to a third on a lifetime maximum of $2 million in eligible capital gains.
“But the capital gains inclusion rate increase to 66.7 per cent will create many net losers, including owners of medium-sized businesses,” Kelly said in a statement.
The Liberal government is pointing out that in other countries, including the United States, businesses have to pay corporate taxes on all capital gains.
James Orlando, TD’s director of economics, said federal spending is speeding up but remains below the government’s self-imposed “speed limit.”
“We’re looking at a deficit profile that is going to be wider than what we saw just a few months ago. And so that means that you’re going to have greater spending, greater debt burden,” Orlando said in an interview.
“But due to the fact that common growth has improved, you still have the government flying under their fiscal anchors.”
In the lead-up to the budget, Freeland promised that the government would abide by the fiscal guardrails it promised in the fall, including keeping the deficit from rising above $40.1 billion.
The fall economic statement also set the goal of keeping deficits below one per cent of GDP beginning in 2026-27 and lowering the debt-to-GDP ratio in 2024-25 relative to the projection.
While the deficit for the 202324 fiscal year remained flat at $40 billion, it came in higher than previously forecast for the rest of the projection horizon.
Still, the deficit, deficit-to-GDP ratio and debt-to GDP ratio are all projected to fall every year until 2028-29.
Federal finances are also benefiting