Monday, July 15, 2024

Capital gains tax hike: here are three positives

Capital gains tax hike: here are three positives


Kim Moody: Anytime you can get the general public talking about taxation it’s a good thing

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June 25 is the day the capital gains inclusion rate increase comes into effect. Even though the particular legislation is not yet in a bill and thus not passed into law, it’s quite clear it will become so later this year with legal effect as of that day.

The measure quickly became a lightning rod of controversy when it was announced on April 16. By now, most of us are familiar with the deceptive messaging by the government, which continues to say the measure affects just 0.13 per cent of Canadians. It is also most certainly not needed to ensure “fairness,” nor to prevent the “rich” from living in ever-increasing “high walls” while the commoners are envious at their gates.

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Frankly, the whole thing stinks. The taxation policy, lauded by some academics and ideologues, is poor. There is no doubt in my mind that it will spur the departure of successful Canadians and that investors will not look favourably on it when deciding whether to invest here.

Prior to June 25, the most common question that I received from concerned people was, “What should I do?”

While the federal government has shamelessly budgeted that many Canadians would rush to crystallize their affected assets under the lower taxation regime, and certainly some have, it’s been my experience that in many cases, the cost of triggering the tax prior to June 25 simply doesn’t make sense if you have the benefit of time and sufficient or stable rates of return.

Most people I have chatted with have also been interested in the political risk. “If the Conservatives win the next election in 2025, will they reverse these measures?” they ask.

That’s obviously something I cannot answer with certainty, but the Conservatives recently announced they would implement a tax reform task force within 60 days of taking office, so there remains some hope that this poor measure — along with a whole host of other crummy taxation measures — will come under the microscope if a new government is elected.

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If the capital gains increase ultimately gets reversed by a new government next year, there will be plenty of taxpayers who might look back in hindsight and regret the decision they made prior to June 25, 2024.

That said, it will be interesting to see if the government’s prediction of how much tax revenue it will collect because of the increase comes to fruition. My prediction is that it won’t. If I’m correct, the obvious result is that the 2025 deficit will come in much larger than estimated.

I like to think that I’m a “glass half full” kind of guy. While the negatives of this measure are obvious, what are some of the positives? Well, there are a few.

The first is that anytime the general public is talking about taxation, it’s a good thing. I’ve said for years, including in my 2020 breezy book, Making Life Less Taxing, that Canadians’ knowledge about their tax affairs needs to improve.

For example, I’ve seen numerous social media influencers emphatically say that “flippers” of property always get capital gains treatment, so the increase in the inclusion rate is “fair.” Nope, not true. Existing rules in the Income Tax Act most certainly treat flippers’ profits as fully taxable income and not capital gains. And it’s these types of falsehoods that politicians take advantage of when it’s convenient.

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The second positive is that if you spend even a short amount of time trying to understand the dynamics of what’s at play, you can quickly see the deceptive nature of this government and the cheerleading by ideological academics who lack practical and business experience.

The amount of effort that the government has expended in coordinating social media messaging by its MPs and followers is impressive. But that also shows how broken this government is on full display. Any reasonable Canadian can see that and should demand better governance.

The third is that it’s apparent that most centrist and reasonable Canadians have had enough of poor policies that favour divisive and vile politics, or the constant push for equality of outcomes rather than equality of opportunity. Reasonable Canadians are demanding change.

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Entrepreneurial coach Dan Sullivan is famous for saying, “Always make your future bigger than your past.”

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I agree. I’m very optimistic that Canada has a brighter future than its rich past. However, it needs better governance, which includes a government that is considerate of all its constituents, has respect for basic economics and good taxation policy, and a population that is willing to work hard to improve its standard of living and take care of its vulnerable.

I look forward to a bright Canadian future.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimmoody.

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