(Kitco News) – As global governments scramble to find sources of income amid growing economic uncertainty, many are focusing their efforts on what they consider to be ‘easy income’ for investors – increasing taxes on capital gains.
The most recent to propose a rise in the capital gains tax is Canada, where the 2024 Budget proposal put forward by Prime Minister Justin Trudeau has recommended a tax range of 50% to 67% depending on the taxpayer’s income bracket.
“Specifically, 66.7% of capital gains realized on or after June 25, 2024, would generally be included in income for tax purposes (this is up from 50%),” said analysts at Grant Thornton. “To provide some relief, the budget proposed that capital gains up to $250,000 realized by an individual – either directly or indirectly through a trust or partnership – will remain subject to the 50% inclusion rate each year.”
“A higher capital gains inclusion rate means higher taxes on the sale of investments and other capital property,” they added. “For example, an individual subject to the top marginal tax rate can anticipate about an 8% - 9% increase in taxes on capital gains in excess of $250,000 realized on or after June 25, 2024. For corporations and trusts, the tax rate increase is immediate on the first dollar of gains.”
While speculation that a potential increase in the capital gains inclusion rate had been circulating for years, the announcement took many taxpayers and tax professionals by surprise.
In response to concerns, the government highlighted that this change will primarily affect the wealthiest 0.13% of individuals, encompassing approximately 12% of Canada’s corporations and Canadians with an average income of CAD 1.42 million.
They stressed that 99.87% of Canadians will remain unaffected by the change, which excludes the sale of primary residences. Projections indicate that this measure will generate $19.3 billion in revenue over the next five years.
There is currently no draft legislation that would enact the proposal, and many uncertainties remain about how this change would interact with existing provisions in the Income Tax Act.
“If enacted, the change will be effective June 25, 2024,” Grant Thornton noted. “This provides only a brief window for taxpayers to understand the potential impact and to decide whether to take action.”
The move comes as Canada is experiencing a housing crisis that has put pressure on aspiring young homebuyers. The Canada Revenue Agency’s website shows that common capital properties include securities – such as stocks, bonds, cryptocurrencies, and units of a mutual fund trust – land, and buildings.
Under Canada’s current tax laws, cryptocurrencies are classified as commodities and taxed as either business income or capital gains. Taxpayers are not required to pay taxes to purchase or hold crypto. Taxes mainly apply to capital gains or business income from cryptocurrency sales, mining activities, or other crypto-related transactions.
50% of all taxable gains must be reported as income on the tax return for the year an asset was sold. Based on the proposed Capital Gains Tax law, any gains over CAD 250,000 will be taxed at 67%.
While many voiced strong opposition to the changes, others offered a more measured approach.
“Nothing burgers, everywhere,” said X user Crypto Taxes Made Easy. “Canada's capital gains rate was not raised to 66%. In Canada, you only get taxed on 50% of your gains at your income tax rate. $10k of gains? You get taxed on $5k.”
He noted that, based on the proposal, if a trader had $260,000 in capital gains, the reportable income for tax purposes would be $131,600.
“Get taxed on $125k of the 250k and $6600 of the $10k over 250k,” he said. “Still better than everywhere else getting taxed on 100% of gains. Not to mention, you can send losses back two years in Canada. Despite having a tax biz, I'm a taxpayer and prefer lowest tax possible so still not saying this is good… just saying some of y'all have misplaced rage. Let's be honest, 99.9% of the TL is not getting their taxes raised.”
Canadian real estate investor Daniel Foch also pushed back against the outrage, noting that Canada has the lowest marginal effective tax rate in the G7.
Canada has the lowest marginal effective tax rate in the G7
Per Department of Finance pic.twitter.com/86rYwLwvuC— Daniel Foch (@daniel_foch) April 16, 2024
This proposal from Trudeau follows the 2025 Budget proposal from U.S. President Joe Biden that would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6%.
