Breaking down the capital gains tax changes

Senior business reporter Nisha Patel is here to break it down for us and Nisha. Capital gains in the headlines. But a lot of people are wondering, what are they in? Millions of Canadians don’t earn capital gains, so it’s OK to be unfamiliar with the phrase. Let’s say you own a rental property or shares in a company. If you sell that asset or investment for more than the original purchase price, it’s called a capital gain. You made money and you’ll have to pay tax on it. Changing how that money is taxed is a move that’s been met with praise, criticism, and frankly, a lot of confusion. The new rules would take effect in just about 10 weeks, June 25th. Right now, corporations and trusts pay tax on half their profits. The changes announced in the budget would have that jump to 2/3. Individuals would still pay tax on half the money they made-up to $250,000 a year, but 2/3 would be taxable for every dollar above that level. Remember, it’s not the actual tax rate that’s changing. You just have to pay tax on a bigger slice of the pie. The federal government says this move makes the tax system more efficient because for people who work a job, all of their wager salary is subject to tax. But for someone who plays the stock market, only half of that income is taxed right now. So the change is meant to reduce that advantage. And so a big question, what, what impact is this going to have on on individuals? There are estimates that this will impact about 40,000 Canadians in any given year. Many of them are the highest earning in the country. But there are some average folks who could get caught up in this change. Here’s economist Trevor Toome. In different years, different people will be affected. So a larger share of the population will at some point be affected by that, even though it’s true that at any given year it’s less than 1% of tax filers. And yeah, where more middle class Canadians may be affected would be those who have second properties. While capital gains from selling a principal home still won’t get taxed, anyone who owns an additional property like a cottage or a condo that they want to sell could get hit with a higher tax bill. Here’s how the math works. Take someone in the top tax bracket living in Ontario who made $300,000 in profit from selling a second property. The new rules would cost them more than $4400 in extra tax. That means there is the possibility, Ian, that selling before that June 25th deadline could save some money. Yeah, it’ll be interesting to see if there’s a spike in sales ahead of the deadline. Now there’s been pushback from from business groups. What’s their issue? You’re right. Hundreds of CE OS have even signed an open letter asking the government to scrap this tax change. They say making companies pay more will squash business investment at a time when Canada is already facing a productivity crisis, and that higher taxes will force entrepreneurs to think twice about taking risks and trying to grow their business. The tech sector has been particularly vocal about these changes. Take a listen. Our goal should be to try and build globally successful giant firms that are headquartered here that generate 10s of billions of dollars of revenue so that it spurs on hiring of of of people in the country that have ownership in these firms that then pay taxes and that generate wealth and prosperity. The way that this is being structured is it makes it punitive to the point where individuals are questioning whether or not they should remain in this country, they should keep their companies in this country and whether or not there is a future for for the space. Some economists say businesses that are concerned should be pushing for lower corporate tax rates. And the government did try to blunt the impact on entrepreneurs by giving some new tax breaks to small business owners. There are others who say the changes are fair. Here’s Elias Aria, a tech CEO who founded the website well.ca. Everything I’m hearing right now is people are saying it’s harder to pay rent, it’s harder to afford groceries. And so if we could all step back and talk about how do we make it easier to live in Canada so that we can all, you know, invest in ourselves and invest in our companies, that’s a more important question. Then how do we help the top 0.313% of Canadians make more money? So there is a diversity of opinion on this. Nisha, taking all these points of view into account, or most of them anyway, what should Canadians start thinking about, Ian? There can be a lot of money involved and a lot of moving parts when it comes to taxes. Canadians who may have to make some big business decisions in the weeks ahead should talk it through with a financial advisor. Nisha Patel in Toronto, Thanks.