(photo/Canadian Press)

By Kenneth Cheung

CAPITAL GAINS TAX

‘Either way, the government ends up winning’: Concerns surround capital gains tax increase

Jan 13, 2025 | 4:17 PM

As the federal government is raising the capital gains tax inclusion rate from one half to two-thirds at amounts above $250,000, a North Battleford financial expert believes this may harm the country’s economic competitiveness.

“This is just a long line of our federal government attacking the people who are actually generating the money that they needed to hand out to the rest of us,” said Gerald Pohl, principal owner of Analytic Chartered Professional Accountant.

“He[Justin Trudeau] wants to attack the people he thinks are rich, and that ends up being farmers, small business owners, and estates,” he said.

Under the proposed change, the first $250,000 in capital gains would be taxed at a 50 per cent inclusion rate, while gains above that would be subject to a new 66 per cent inclusion rate, increasing the overall tax burden.

Noting that average working-class residents wouldn’t feel the burden, he pointed out that farmers experiencing a rise in land values are likely to be most impacted.

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“You’re going to see farmers get hit by it because they typically have very large assets that only gain in value,” he said. “There’s a lot of guys out there that bought their lands at a very low cost back in the 70s and 80s and haven’t sold their land yet, and they’re likely to be the ones that get hit by this.”

“The other people you’re going to see getting hit by this are people with fairly large estates.”

He added those with investments outside retirement accounts may face significant tax implications. If they were to die without a spouse to inherit these assets, the entire unrealized value could be subject to taxation, which could be “very large in some cases.”

Last September, the federal government proposed increasing the capital gains tax for companies and individuals with capital gains earning above $250,000 from one half to two-thirds. However, the tax hike is pending a final vote in Parliament and will be prorogued until March 24.

Despite the prorogation, the CRA will still issue taxpayer forms by January 31, following the proposed capital gains rules.

“CRA is basically saying you have to file it now as though that measure has been passed, and if it never passes, then you can go and adjust and get your tax back, the additional money you paid,” he noted.

Given the uncertainty of whether the proposed increase will pass, he said that asking people to file the tax now is “not a great situation.”

“Because there could be some people affected by this tax that will forget to go back and make the adjustment, or they may pass away between the time when the original filing was done and when the adjustment should be done,” he said.

“So I mean, either way, the government ends up winning, even though they shouldn’t have been implementing that change in the first place.”

“Unconstitutional”

As the tax is being carried out without being passed in Parliament, Devin Drover, general counsel and Atlantic director of the Canadian Taxpayers Federation(CTF) says it is unconstitutional.

“Section 53 of the Constitution Act ingrains the principle that there should be no taxation without representation, essentially that any tax in Canada on the federal level needs to be voted on by members of the House of Commons, and this tax has yet to be voted on by the House of Commons,” Drover said.

He went on to note that CTF will explore different options, such as taking legal action to hold the CRA and Trudeau’s government accountable for it.

“While a way and means motion for the hike passed last year, the necessary legislation was never introduced, debated or passed,” he said in a CTF statement.

When asked whether this tax would add another layer of harm to Canada’s existing challenges with the United States, he believes it would ultimately make Canada less compatible.

“It would be bad policy for this government to push through with the capital gains tax that will make Canada less competitive and will be less likely to attract investment and grow and create Canadian jobs,” Drover noted.

“This is just one more step in a long line of making Canada uncompetitive on the world stage,” Pohl added when discussing the same matter.

Pohl also pointed out, “The more the government takes, the less competitive we become.”

He believes that increasing taxes leaves local businesses with less money to invest in upgrades and improvements, ultimately hindering their competitiveness against businesses from the States.

As it remains uncertain whether the capital gains tax will be passed in March, Pohl believes there could be a potential silver lining if a new government is to be elected following the federal election. Drover added that CTF will continue to exert pressure on politicians to hold the federal government accountable.

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Kenneth.Cheung@pattisonmedia.com