Capital gains tax changes about ‘intergenerational fairness’: Trudeau

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OTTAWA — One week after tabling the latest federal budget, Prime Minister Justin Trudeau remained on the defensive while responding to increasing opposition from business and industry groups against proposed changes to capital gains taxation.

Speaking to reporters during a budget promo tour stop in Saskatoon, Sask., Trudeau was repeatedly asked to respond to critiques of the key point of contention in last week’s budget: the increased capital gains tax inclusion rate.

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The opposition is from business and industry groups such as chambers of commerce, tech company CEOs and even the Canadian Medical Association to Trudeau’s own former Finance Minister Bill Morneau.

In response to every question, Trudeau beat the same drum: that the system is currently unfair to young people who can’t afford to buy a first home and that it’s time for wealthier and older individuals to pay more to work towards “intergenerational fairness.”

He also appeared to take a swipe at his former finance minister when asked what he thought of Morneau’s comments that the increased inclusion rate would create a “disincentive” for those who have made or planned to make investments that will lead to significant capital gains.

“I understand there are those who have been very, very successful off the way the system used to be who don’t want to see the system changed,” Trudeau said.

“Young people right now make up the largest part of our workforce and if they don’t see paths to success, it’s the entire economy that suffers.”

The capital gains inclusion rate increase is contentious because as of now, only half of all capital gains (which come from the sale of assets like stocks or a second home) are taxed as part of what is called the inclusion rate.

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In the budget, the Liberals said that creates an unfair taxation disparity because the wealthier you are, the more your income is made up of capital gains that aren’t completely taxed.

So, the Liberals proposed to reduce the tax-exempt amount from half to one-third for capital gains by individuals that exceed $250,000 in a year. The lower exemption would also apply to businesses but for all capital gains, not just those over $250,000 in a year.

The document said only about 0.13 per cent of Canadians, or 40,000 yearly, would be impacted by the increased inclusion rate. The additional capital gains taxes are expected to rake $19.4 billion into the government’s coffers over the next five years.

The move was immediately lambasted by various business groups and C-suite members who said the increased inclusion rate would disincentivize investments in Canada and hurt productivity.

The day after the budget was tabled, the Council of Canadian Innovators published an open letter signed by hundreds of tech CEOs warning that the higher inclusion rate would curb entrepreneurship in Canada and that other measures to offset the increase were not sufficient.

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On Tuesday, the Canadian Medical Association warned that the change could impact doctors’ retirement savings and ultimately have a negative impact on Canada’s ability to recruit and retain physicians.

In a statement, CMA President Kathleen Ross said doctors could now face “increased financial strain” because of the capital gains tax changes and urged the government to reconsider the change.

Trudeau appeared unswayed by those concerns Tuesday when asked if he would consider exempting doctors from the proposed increased inclusion rate.

“We just don’t think it’s right that a student or an electrician or a teacher be paying taxes on 100 per cent of their income while others have the opportunities to use accountants and any taxes on only 50 per cent of that income,” he said in response to questions about the CMA’s comments.

“So yes, we are asking the most successful in this country to do a little bit more to make sure that everyone can see themselves in the success of this country.”

He also clapped back against critics who said that the change would also hurt Canadians who invested in real estate beyond a primary residence and would have to pay more taxes if they sell.

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“I understand for some people this may cost more if they sell a cottage or a secondary residence. But young people can’t buy their primary residences yet,” he said.

Trudeau insisted that the Liberals’ controversial gun buyback program is going ahead despite a report by Radio-Canada Tuesday morning that Canada Post is refusing to collect firearms the government banned in 2020.

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