Open Comment: Capital gains tax proposed increase

(Editor’s Note: Stittsville business owner, Phil Sweetnam, reached out to Stittsville Central to share his perspective to the proposed federal capital gains taxation inclusion rate for personal and business transactions.)

Prime Minister Trudeau says that he wants to create a fairer tax system. To this end the 2024 federal budget proposes to increase the capital gains inclusion rate for trusts and corporations from the current rate of 50% capital gains to a proposed increase to 66.7% (when capital gains are less than $250,000 the rate of 50% capital gains would apply for personal assets but not for corporate assets). This proposed increase in the inclusion rate for capital gains is unfair.

I suspect most business taxpayers will not object to paying capital gains tax on the real increased value of an asset, but most taxpayers object to paying the tax on an inflation enhanced sale price. The following example illustrates why taxation on inflation enhanced value is unfair and inappropriate.

The consumer price index (CPI) indicates inflation has caused the price of goods to balloon by 54.27% over the 20 year period from April 2004 to April 2024. Whatever the increase in an asset’s sale price, the first 54.27% of the increased value does not increase the purchasing power of the funds received from the sale of the asset. Taxable income should only be due on the capital gain above the inflation rate for the period for which the asset is held. 

As an example, if I purchased real estate in April 2004 for $100,000 and sold for $170,000 in April of 2024, my initial purchase of $100,000 would increase to $154,000 because of inflation (calculated using the CPI). The real net capital gain on the sale of this hypothetical real estate sale is actually only $16,000.00 assuming there were no other expenses that are tax deductible. However, the government is planning to tax the full seventy thousand increase.

The federal government’s proposal will tax inflation and will receive extra tax revenue by increasing the amount of tax paid by Canadians with no real increase in value. As the government allows high inflation, it is not at all fair. To be fair to Canadians, real estate capital gains should only be taxed on actual capital gains above the inflation rate. With this change to the proposed new tax inclusion rate the government would not be perceived as benefiting by increased capital gains tax caused by the government allowing inflation.

Thank you.
Phil Sweetnam, Stittsville


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