Stop whining about your capital gains

Sometimes, it’s best to know when to shut up. I say this with some measure of recent experience, not to mention a lifetime of saying things that other people didn’t necessarily want to hear. But when it comes to the changes to Canada’s capital gains inclusion rate and the bellyaching about the apparent injustice it represents to people with recreational properties and other profitable investments, it’s advice that clearly needs to be repeated aloud.

The changes, after all, will only restore the capital gains inclusion rate — that is, the proportion of your capital gains that are taxed — to the level it was at in the late 1990s. Even then, this new higher inclusion rate only kicks in at $250,000 per year, which means that everything up to that is still included at the old 50 per cent rate (in other words, you’d only pay taxes on $125,000 of it). By comparison, the wages a teacher or lawyer or barista earns face an inclusion rate of 100 per cent.

In part, the federal government is raising the inclusion rate on capital gains — or, perhaps, restoring it — to help address this unfairness. As University of Calgary economist Trevor Tombe argued in a piece for The Hub, “The government’s change makes the after-tax amount a person receives from capital gains very well aligned with other types of payments. That’s good! It makes the tax system more efficient and equitable.”

The shift is meant to address the growing intergenerational inequalities and injustices that are clearly weighing on the Liberals’ poll numbers and popularity. As Generation Squeeze founder Paul Kershaw argued in a piece for the Globe and Mail, it probably didn’t go far enough here to do that. “More, not less, taxation of second properties is required to protect younger Canadians in the housing market, fill the revenue hole left by governments that did not plan adequately for boomers’ retirement, and spur productivity.”

As to those crying foul over the impact this will have on the capital gains embedded in their cottages or investment properties? Kershaw isn’t having it. “Paying taxes on a half-million-dollar capital gain from a cottage or an investment property is a good problem to have,” he wrote. “I could line up millions of younger Canadians who would jump at the opportunity to trade their housing woes for that privilege.”

I’m not having it, either. That goes double for members of the tech community who want to pretend a modest tax increase will somehow squash entrepreneurship and risk-taking. “How are we going to encourage innovation, job creation or strong economic performance if we’re not encouraging folks to dream?” Marie Chevrier Schwartz, the founder and CEO of the product sampling company Sampler, asked in a LinkedIn post.

I would gently suggest that one’s ability to dream isn’t entirely dependent on the rate at which their eventual profits are taxed, especially when said rate is still lower than it was a generation ago. I seem to recall a lot of jobs being created and innovation happening in the 1980s and 1990s, after all.

As to those threatening to move their job-creating businesses to America over the change? Have at it. If anyone’s loyalty to this country is contingent upon the rate at which capital gains are taxed, they were never loyal to this country in the first place. Best of luck, by the way, with Joe Biden’s proposed doubling of the capital gains tax rate down there.

What might be most notable are the people who aren’t speaking out against this change. Pierre Poilievre, who revels in his ability to oppose Justin Trudeau’s very existence, has been conspicuously quiet about this supposedly anti-business policy. So, too, has Danielle Smith and Canada’s other Conservative premiers. The reason is simple: money. If Poilievre becomes prime minister, he probably doesn’t want to surrender this new source of tax revenue. Neither do the provinces, who will trouser more than $10 billion in additional annual tax revenues themselves.

What we need now isn’t more whining about this particular element of tax policy but a broader conversation about how we can align our tax system better with our political and social objectives. Why not double the GST to 10 per cent and cut income taxes for low- and middle-class Canadians? Why not increase the carbon tax for large emitters and flow the additional funds into green energy programs and subsidies? And yes, why not find ways to stimulate and attract business formation and job creation — without participating in an endless race to the corporate bottom?

With one final budget, the Trudeau government has one final chance to reframe this conversation. Let’s hope it thinks even bigger next time.