Recap: Capital Gains Taxes Going Up

As part of Budget 2024, the Government of Canada announced that they would be upping the capital gains inclusion rate:

Budget 2024 announces the government’s intention to increase the inclusion rate on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and trusts from one-half to two-thirds, by amending the Income Tax Act, effective June 25, 2024.

-Budget 2024

The government claims that this measure will: “only affect 0.13 per cent of Canadians with an average income of $1.42 million who will be expected to pay more personal income tax on their capital gains in any given year”

Their own figures contradict this claim – with capital gains tax revenues projected to be heavily front-loaded in 2024-2025, presumably as investors and business owners sell their assets en masse before taxes are hiked on June 25th.

(its 32% more taxes owed, who can blame them?)

Panicked Selling Ahead of June 24th 2024 Deadline Estimated to Bring in Billions

If there was any doubt the government knew that Canadians corporations would dump their assets and lock in a lower inclusion rate ahead of the June 24th 2024 deadline — its now gone.

Documents obtained by the Northern Account reveal that the Government of Canada’s own analysis estimates that Canadian corporations will pay an extra $4.945B in capital gains tax in 2024-2025.

This is additional revenue that that government didn’t account for in their last projection, before the budget was released.

At a 26% capital gains tax rate (the current 50% inclusion rate) we can estimate that the government is anticipating that corporations will be selling, and locking in, roughly $20 billion in additional capital gains over the next year. (lets be honest, most of this will be happening before June 25th 2024)

A One Time Cash Injection as Investors Re-strategize

This tax windfall is estimated to dry up completely by 2026-2027, when the government projects that corporations will pay $385 million dollars less than normal in capital gains taxes. (even at a higher tax rate — they know corporations are strategic)

This is all one giant tacit admission that the government is trying to shake out some loose change from the corporate couch before the upcoming election.

Short-term gain for long term pain.