Controversial capital gains change now in effect

A controversial change to the capital gains inclusion rate has now taken effect.

A controversial increase to the capital gains inclusion rate is now in effect despite strong pushback from small businesses, farmers and medical professionals.

Starting today, individuals with capital gains of more than $250,000 will be subject to an inclusion rate of 67 per cent, up from 50 per cent before. For corporations, all capital gains are now subject to the two-thirds inclusion rate.

The federal government says the move will improve tax fairness and increase federal revenues by $19.4 billion over five years, with a bulk of that money flowing into federal coffers this year. Budget 2024 shows the change to the inclusion rate will bring in an estimated $6.9 billion dollars this fiscal year.

The tax change applies to profits made from the sale of secondary properties or investments, including stocks or bonds and family cottages. The new inclusion rate does not change the tax rate itself, which will continue to be an individual or corporation's marginal rate, but increases the taxable portion of that gain.

"Do you want to live in a country where we make the investments we need — in health care, in housing, in old age pensions — but we lack the political will to pay for them, and choose instead to pass a ballooning debt onto our children?" Finance Minister and Deputy Prime Minister Chrystia Freeland asked in Toronto earlier this month.

EY Canada tax policy leader Fred O'Riordan says the government appears to be using this tax change to keep the federal deficit below $40 billion.

"Instead of doing (it) immediately effective Budget Day, which is why most of them are done, they gave that window of time a couple of months until June 25," O'Riordan said. "A lot of us believe that the main reason they did that was to encourage people to crystallize, to realize capital gains earlier than they might otherwise and then bring additional tax revenue into this fiscal year."