The Proposed Capital Gains Tax Changes:

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How Conservative/Private Sector Disinformation Campaigns, Public Ignorance and Poor Government Communications Are Once Again Putting a Good Policy At Risk

Here we go again. The most effective and least costly option to fight climate change – the carbon pricing system introduced by the Trudeau Liberal government – is now in serious danger of losing its previously widespread public support, and even of being eliminated by a future Conservative government committed to its foolhardy “Axe the Tax” plank. The reasons for the pricing plan’s rapidly declining level of support are listed in the title of this piece: deliberate disinformation campaigns by the Poilievre Conservatives and several Conservative provincial premiers; the general public’s abysmal ignorance of relevant facts, and the federal government’s apparent inability to devise and stick to a compelling narrative in support of the plan. And let us not forget the role of irresponsible social media, (and some mainstream media desperately vying for attention), in hyping the disinformation, to say nothing of wildly biased advertising campaigns by the private sector, in this particular case the oil industry.

Now we are seeing the same type of misleading mass attack on the federal government’s plan to make changes to the capital gains tax as announced in the recent budget. Small businesses, doctors, cottage owners and private sector innovation and technology companies have all chimed in with dire warnings, full page ads and open letters decrying the potentially ‘disastrous’ impact of these changes. Several Conservative provincial premiers, including Ontario’s Doug Ford, have added their voices to the chorus of criticism. Only federal Conservative leader Pierre Poilievre has been conspicuously silent on the subject, evidently fearing he will be seen by his populist base as a champion of the superrich if he rejects the measure.

This should tell us something. As both the Prime Minister and the Finance Minister took pains to explain at the time, the change will have no impact on 99.87% of Canadians. The 0.13% that will be affected have an estimated average annual income of $1.3 million. For them, the portion of any capital gains over $250,000 that will be taxable is being increased from the existing 50% to 67%. (So, for example, on a capital gain of $350,000 in a given year, the 67% inclusion rate would apply to only $100,00.)

More importantly, this is an inclusion rate, not a tax rate, despite what many Canadians mistakenly believe,(and many critics of the plan apparently want them to continue to believe!) There is no federal income tax rate of 50% never mind 67%. Put another way, in the example above, under the new rule the individual would be required to pay tax on $67,000 of the $100,000, rather than on $50,000 as is currently the case. But the tax RATE he or she would pay on this revenue is another matter entirely. At present, the highest federal tax bracket for individual income tax is 37%. Thus hypothetically the individual would pay no more than 37% on $67,000, (rather than on $50,000), or roughly $8,000 more than under the current system. (And if the gain is made jointly, for example in the case of cottage ownership, the inclusion rate is doubled to $500,000 and the tax owing will likely be halved.) Not many people would call this overly burdensome for the wealthiest among us.    

Even more significant in terms of tax fairness (the theme of the budget) is the fact that under the current system individuals making the same amount of income in a given year are paying much different taxation rates. As one columnist noted in a piece of admirable simplicity, far better than a certain academic could do:

A person in Ontario who earns a salary of $300,000 a year, (putting them in the top income tax bracket), and gets a raise of $1, will lose 53.5 cents of that dollar to federal and provincial income tax.  But if that income was capital gains, they’d lose half as much – less than 27 cents.  Employment income such as a salary…is subject to a 100% inclusion rate. Ditto money from an RRSP. Ditto money from a pension. (BUT) capital gains get preferential treatment. The Trudeau government is proposing to make that treatment less preferential.  [i] 

Sounds fairer to me….

Meanwhile the new inclusion rate will apply to all capital gains realized by large corporations and trusts. This is specifically intended to partially redress a longstanding and well-known issue of unfairness in our tax system, namely payment of senior executives in stock options.  (Again, keep in mind the budget theme is tax fairness for all.)  In a report commissioned by Canadians for Tax Fairness prepared by the Canadian Centre for Policy Alternatives, the authors found that many large corporations now pay their top five executives more than they pay in total in corporate income tax. And the executives, in turn, pay far less in income tax than many Canadians of lower incomes. As the report stated:

Unfairness in our tax system helps to perpetuate excessive executive pay and income inequalities in numerous ways. Preferential tax rates on stock options and on capital gains income, such as income from shares, allow executives to pay half the rate of tax as the rest of us pay on our regular income and create incentives to increase pay to executives in these ways. These types of compensation make up the bulk of most CEO pay packets and has also made corporate executives more aggressive in avoiding corporate taxes as well. These tax loopholes are also highly regressive along income and gender lines. For example, over 90% of the benefits of the stock option loophole go to the top !% and 77% goes to men.  (For the full report, see

It is also worth noting, as Ms Freeland did repeatedly, that the capital gains tax inclusion rate for both individuals and corporations was actually set at 75% between 1990 and 2000.  Indeed, it was the Progressive Conservative government of Brian Mulroney that raised the inclusion rate to 66.7% in 1988 and 75% in 1990, where it stayed until it was lowered to 50% by the Liberal government of Jean Chretien in 2000.  

Similarly, it is important to note that in 2021 the Canadian Tax Journal devoted an entire section to papers discussing the issue of capital gains tax.  Virtually all of the contributors were in favour of raising the inclusion rate. As one of the 2021 authors indicated in a recent CBC interview following release of the 2024 budget, “There are a lot of reasons why the inclusion rate should go up for capital gains…it’s fairer for all Canadians if taxpayers with capital gains pay the same rates of tax as the rest of us do right now.” Also, “it’s better for the economy if every investor is paying the same tax rate on everything she or he invests in,” noting differences in the way dividends and capital gains are taxed.[ii]

Moreover, despite the hue and cry from various self-interested segments of the economy, the government’s new capital gains plan has numerous caveats and nuances that are clearly designed to minimize negative impact and unintended consequences for both individuals and businesses. For instance, the total capital gains exemption on an individual’s principal residence is maintained. The lifetime exemption on the sale of small business shares, farming and fishing property is not only preserved but raised to $1.25 million. In addition the government introduced a Canadian Entrepreneurs’ Incentive, which reduces the capital gains taxable portion to only 33% for certain industries.

Despite this cautious approach on the part of the government, those who believe they will be negatively impacted have been quick off the mark, not only to criticize the plan but to engage in reckless fear mongering. There will be fewer doctors practising in Canada, at a time when there is already a severe shortage. There will be no investment in innovation, and Canadian technical entrepreneurs will flee the country. Middle income Canadians will see their net worth decline dramatically if/when they sell a family cottage. Small business owners whose retirement plans are built around their business will be devastated….and so on. [iii]

Yet many experts have rejected those arguments. For example Dan Kelly, President of the Canadian Federation of Independent Businesses, stated that he believes most small-business owners will actually come out ahead or be unaffected by the changes.[iv] Several experts noted Canada’s taxation regime for business will still be either comparable to or more attractive than that of the United States. Noted Simon Fraser University economist Jonathan Rhys Kellerman earlier stressed the fact that “When the inclusion rate was raised to 75% in 1990 for nearly a decade, adverse economic impacts were not observed…”, despite equally dire predictions at the time[v] And numerous realtors in Ontario believe cottage owners are panicking needlessly. As one realtor noted, “A lot of people have anxiety about it. But a lot of people feel it’s going to affect them a lot more than it probably will.”[vi]

As for the threatened decrease in the number of doctors, Globe columnist Tony Keller pointed out the obvious, namely that there are many reasons for a doctor shortage across Canada and taxation measures are not one of them. If all types of taxation on physicians were eliminated tomorrow, the number of doctors would not suddenly increase. “Canada has a shortage of doctors because governments and licensing authorities have long restricted the number of seats in medical schools, the number of residency spots for graduates, and the number of foreign-trained doctors licensed to practice, including thousands of Canadians trained overseas who want to come home…The main concern was the high cost of ‘too many doctors.’ Behold the result.”[vii] In the case of Ontario, this shortage has been heightened by a longstanding feud between the Ford government and the medical profession over fees and paperwork, a situation which only recently appears to be gaining the attention of the premier.[viii]     

As former Governor of the Bank of Canada Stephen Poloz pointed out, in this latest budget the government is responding to an ever-growing numbers of calls from across Canada to increase services and provide additional programs in a wide range of policy areas, including health care and defence. These require additional expenditures that can only be acquired through increased revenue, especially if public opposition to deficit financing increases as well. [ix] Among the choices available for that increased revenue, the capital gains inclusion tool is easily the least invasive. It is also most likely to be accepted by the majority of Canadians as a measure that will also add fairness to the taxation system, as long as it is properly explained and defended.  

On a positive note, the Liberals’ recently announced decision to separate the capital gains provision from the rest of the budget and present it as a standalone measure may well be inspired. The Conservatives have already committed themselves to voting against the budget. Fine. It will pass with the support of the NDP and possibly the Bloc. But what will Mr. Poilievre do when confronted with the capital gains measure on its own? He will reject it at his peril in terms of his base, but if he supports it he will be handing the government a victory and at the same time risks alienating many of the more traditional supporters of the Conservatives in the business community. A sticky wicket indeed. But Mr. Poilievre is nothing if not a cagey and devious political player who may yet find a way around this conundrum.

At the end of the day, if the Liberal government hopes to win the war of public opinion on the measures it is proposing, it is imperative that it develop and maintain clear and consistent lines of communication on the actual provisions, who they will impact and why, and how these measures will benefit most Canadians as well as the economy. Given their track record to date on communications with respect to other important policy initiatives, and especially the endangered carbon pricing plan, this is a large ask. To that end it is important that government strategists keep some basic policy truths in mind, ones that bear repeating to themselves and to Canadians as many times as it takes for them to sink in:

  1. There is no such thing as  a perfect policy that makes everyone happy. There will always be “winners” and “losers”. Good government means trying to achieve the most benefits for the most people, minimizing the number of those who are negatively impacted, and, in some cases, providing offsets or exceptions to some of those who lose.
  2. Every policy will have unintended consequences. There is no need to throw the baby out with the bathwater. Despite the best efforts of public service experts that the government relies on to craft its policies, there will sometimes be unanticipated impacts. Usually these will be quite minor. However if these unintentional developments have an effect that is counter to the purpose of the policy, they can be addressed through specific modifications to regulations or legislation. Such minor modifications do not in any way diminish the validity of the policy.    
  3. Every policy has a purpose, and it needs to be clearly spelled out. In the case of the government’s carbon pricing policy, for example, the purpose is to minimize greenhouse gas emissions and reduce the threat of climate change. In the case of the proposed changes to the capital gains tax, the purpose is to increase government revenue, by slightly increasing the amount paid by the wealthiest Canadians, in order to pay for ongoing and increased government services and programs such as housing, dental care, school lunches, free contraceptives and diabetes medications.  
  4. An election is no time to attempt to counter the deliberate deceptions of the opposition and the misconceptions of the general public about a specific policy or policies.  As former federal Intergovernmental Affairs Minister Stephane Dion demonstrated so well in the aftermath of the 1995 referendum on Quebec separation, immediately refuting each and every one of Premier Lucien Bouchard’s incorrect statements and false claims proved hugely effective in dismantling support for separation. 

[i] T. Keller. “Could You Lose Your Doctor Over Higher Taxes?” Globe and Mail. April 19, 2024


[iii]; ;

[iv] I. Galea. “Tech Industry Warns capital gains measures will stymie investment”, Globe and Mail. April 17, 2024.



[vii] T. Keller. Op. cit.


[ix] Galea. Op. cit.