Freeland challenges Tories to take stand on capital gains changes with House motion

Finance Minister Chrystia Freeland laid down a tax gauntlet for her Conservative opponents Monday with a motion to make the promised changes to capital gains taxes a reality.“I do think this is a moment when Canadians should be watching closely what happens in the House and watching closely to see how MPs vote on this defining measure,” Freeland said at a press conference on Parliament Hill. Minutes earlier, she had introduced a ways and means motion outlining the specifics for the capital gains tax change promised in the April budget. The adjustment will mean higher tax bills for most Canadians who make more than $250,000 in profits in a single year from capital income like the sale of secondary properties or stock options.Freeland is billing the change as a matter of fairness to ensure millionaires aren’r paying a smaller tax rate than middle-class income earners like nurses and teachers.But she is also calling it a pivotal moment in Canadian politics and is using a stand-alone motion on this specific change to force the Conservatives to clearly take a stance on the measure.“It is an important time for our country, for us all to take a stand,” she said.Conservative Leader Pierre Poilievre thus far has not done so on the capital gains tax change. When asked about it previously, he and his office insisted they couldn't take a stand on something that didn't actually exist.“There is no such increase,” he said in mid-May, after the measure that had been promised in the April budget was not among the tax changes and program spending listed in the main budget ways and means motion tabled on April 30.A Poilievre spokesman still would not indicate where the party sits on Monday.“Common sense Conservatives will study the motion very carefully before determining next steps,” the spokesman said.He then accused the government of “scrambling and making things up on the fly” and accused them of delaying legislation until the fall. The spokesman called it a tax on health care, homebuilding, small businesses, farmers and retirements.“Doctors, small business owners, and Canadians saving for their retirements have all raised opposition to Trudeau's next tax hike, but he is desperate to pay for the $61 billion in new inflationary spending announced in the latest budget,” the spokesman said.The vote on the ways and means motion is expected Tuesday and the legislation will follow shortly after. The bill itself will not be passed before the summer break, but as long as the motion passes—something expected with the support of the NDP—the capital gains change will take effect June 25.If the capital gains change had been included in the April 30 budget motion, the Tories could argue they were voting against the government's overall policy and not one specific measure. By making this a stand-alone motion the Opposition vote will be more clearly for or against a tax change that affects mainly the wealthy at a time when all politicians on Parliament Hill are jockeying to be seen as the most sympathetic to the plight of Canadians suffering from the soaring cost of living.Last week in question period, Freeland was clear that the government is trying to back the Conservatives into a corner, saying, “Soon, they are not going to have a chance to dodge.”“I am glad to hear the Conservatives, albeit obliquely, talking about income inequality in our society,” she said on June 4. “It is a concern that we share. The good news for the Conservatives is that they have the opportunity to support us and to support our increase in the capital gains inclusion rate, which is a way to ask those at the very top to help the Canadian middle class. Let us see if the Conservatives will do it.”Below is the Canadian Medical Association’s reaction from Sunday and below that is the text of the government’s announcement.Read: Dr. Deepa Soni: My letter to my MP, Anita Anand, about the recent tax law changesCMA’s comment:“The Canadian Medical Association (CMA) is deeply disappointed in today’s announcement by Deputy Prime Minister Chrystia Freeland that the federal government plans to proceed with tax changes that will add undue pressure and financial strain on physicians, undermining the stability of our health-care system.“Canadian medical organizations from coast to coast to coast have advocated to government in recent weeks for physicians to be exempt from the planned increase to the capital gains inclusion rate.“Most physicians enter practice with significant debt and do not have access to employer or government pension plans, benefits, sick leave, parental leave or paid vacation. Moreover, physicians invest their own money to build the necessary infrastructure to provide care to patients, while also relying on their professional corporations to save for important life events. When there are cost increases to rent, insurance premiums, medical supplies or anything else, physicians cannot simply pass those costs onto patients because fees are set with the province or territory in which they practise medicine.“The proposed increase to the capital gains inclusion rate imposes yet another barrier to retaining and recruiting physicians as the first dollar of capital gains realized in a medical professional corporation will be subject to the higher inclusion rate of 66.67%. Corporations are not eligible for the $250,000 yearly capital gains threshold afforded to individuals.“In a time when Canada’s health systems are under ever increasing strain, where patients struggle to access timely care and health care providers burn out from trying to hold together a crumbling system, introducing new reasons for physicians to consider scaling back community-based care is simply the wrong move.”Federal government announcement:“The government is committed to tax fairness for Canadians. Today, Canadians pay tax on the income from their job. But currently, they only pay taxes on 50%nof capital gains, which is the profit generally made when an asset, such as stocks or a rental property, is sold.“The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, tabled a Notice of Ways and Means Motion in Parliament to deliver greater tax fairness and implement the changes in capital gains taxation announced in Budget 2024.“As of June 25, 2024, the capital gains inclusion rate—the amount of capital gains that are taxable—will increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts. This will make Canada’s tax system fairer and raise $19.4 billion over five years to pay for investments to build nearly 4 million new homes, to make life cost less, and to grow the economy—for every generation, particularly Millennials and Gen Z.“To ensure most middle class Canadians and entrepreneurs do not pay more tax, the government is maintaining existing capital gains exemptions and creating new exemptions, including:Maintaining the Principal Residence Exemption, to ensure Canadians do not pay capital gains taxes when selling their home. Any amount you make when you sell your home will remain tax-free.A new $250,000 Annual Threshold for Canadians, effective June 25, 2024, to ensure individuals earning modest capital gains continue to benefit from the current one-half inclusion rate. Capital gains, including on the sale of a secondary property, such as a cottage, will be eligible for the $250,000 annual threshold, meaning a couple selling a cottage with a $500,000 capital gain would not pay more tax.Increasing the Lifetime Capital Gains Exemption to $1.25 million, effective June 25, 2024, from the current amount of $1,016,836 on the sale of small business shares and farming and fishing property. With this increase, Canadians with eligible capital gains below $2.25 million will pay less tax and be better off.A new Canadian Entrepreneurs’ Incentive, to encourage entrepreneurship by reducing the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains. Combined with the new $1.25 million lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs will pay less tax and be better off on capital gains of up to $6.25 million.“The government is increasing the capital gains inclusion rate—with the above exemptions—to make Canada’s tax system fairer. Currently, wealthy individuals can face a lower marginal tax rate on their capital gains than what a middle class worker would face on their paycheque. For instance, a nurse in Ontario earning $70,000 would face a combined federal-provincial marginal tax rate of 29.7%. In comparison, a wealthy individual in Ontario with $1 million of capital gains income would face a marginal tax rate of 26.8%.“Through Budget 2024, the federal government is building a fairer Canada, where every generation can reach their full potential. We are making Canada’s tax system fairer by asking the very wealthiest to pay their fair share—so that we can make investments in prosperity for every generation.Quick factsIn Budget 2024, the government is delivering fairness for every generation with a housing plan that includes nearly 4 million new homes; transformative expansions to Canada’s social safety net to make life cost less and ensure Canadians get the care they need; and investments in innovation and productivity to create good jobs and economic growth. The government’s plan for tax fairness makes these investments in younger generations possible by increasing capital gains taxes on 0.13% of Canadians, in any given year, to generate $19.4 billion in new revenue over five years.Today’s Notice of Ways and Means Motion, which contains the legislative details of the capital gains tax changes, will be followed by the release of updated draft legislation this July. In conjunction with the release of updated draft legislation, the government will also release implementation details on the Canadian Entrepreneurs’ Incentive to encourage founders in the technology sector, and others, to create and grow capital-intensive and high-growth companies, as well as clarifications beyond the scope of capital gains taxation to ensure Canada’s mining exploration companies, which are essential to building our net-zero economy, can continue to thrive.Increasing the inclusion rate on capital gains is also expected to generate significant new revenue for provincial and territorial governments, equivalent to up to 60% of the new federal revenue ($11.64 billion over five years). For provinces and territories, this new revenue can be used to lift up every generation by making transformative investments in housing, health care, education, child care, infrastructure, and more.Canadians will continue to benefit from tax-free savings accounts and exemptions for registered pension plans, which are not subject to capital gains taxation. These include:Income, including capital gains, earned in a tax-sheltered savings account, such as an RRSP, RRIF, TFSA, FHSA, or RESP.Pension income or the capital gains earned by the registered pension plans you or your spouse are a member of including your workplace pension plan, and the CPP or QPP.Canadians with an eligible business investment loss can continue to deduct a proportion of those losses (referred to as an allowable business investment loss) from their income. The increased inclusion rate means two-thirds of eligible business investment losses on or after June 25, 2024 can be deducted against income, instead of the current one-half, which will encourage risk-taking and entrepreneurship.Canada has the lowest Marginal Effective Tax Rate (METR) in the G7, and below the OECD average.METR is an estimate of the level of taxation on a new business investment, accounting for federal, provincial, and territorial taxation, as well as investment tax credits, and capital cost allowances.Canada’s attractive METR will not be impacted by increasing the fairness of capital gains taxation.Canada’s METR will continue to support Canada’s attractiveness as an investment destination.The idea of taxing capital gains in Canada first got traction with the government of Prime Minister John Diefenbaker and the Royal Commission on taxation, chaired by Kenneth Carter.From 1972 to 1987, the capital gains inclusion rate was one-half (50%).In 1988, the inclusion rate was raised to two-thirds (66.67%).In 1990, the inclusion rate was further raised to three-quarters (75%).From February 28, 2000, to October 17, 2000, the inclusion rate was two-thirds.Since October 18, 2000, the inclusion rate has been one-half.”

Freeland challenges Tories to take stand on capital gains changes with House motion

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