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The Canadian government is increasing the capital gains tax for the relatively well off. They claim it only affects 0.13% of Canadians, but this is a lie, since capital gains are extremely lumpy, mostly affecting estates. A much larger share of the population will be in that 0.13% at some point in their lives. The tax will affect a lot of middle class people, distort the economy, and, as I'll explain at the end, redistribute wealth to foreigners.
Currently, 50% of capital gains count towards your taxable income and so you'd pay half the marginal rate, which tops out at between 44.5% and 54.8% depending on which province or territory you live in. The new rule would raise the portion of capital gains that is taxable from half to two thirds for capital gains over $250,000. Primary residences are exempt and it doesn't affect tax protected savings accounts like RRSP and the relatively new TFSA. Most people don't save enough to have savings outside of these accounts and their primary residences, but you certainly don't need to be rich to do so. You could be someone who chose never to own his primary residence and increased savings in the stock market instead. You could own a cottage, to which the capital gains tax applies when you either give it to your children or when you die. Lots of middle class people will be affected.
The capital gains tax is actually a very unfair and even absurd tax. You invest after-tax income from your salary and then when you realize a gain on those savings, even if it's just enough to keep up with inflation such that you have no real gain, you pay taxes again. Someone who is equally wealthy but doesn't save his income for as long would pay less tax. So it taxes savers more than spenders and discourages investment. There are further distortions due to the fact that primary residences are exempt, which incentivizes people to save by investing in their primary residences, inflating property values and making housing more expensive.
This brings me to my last point. The Liberals are far behind the Conservatives in the polls and an election is at most a year and a half away. The main issues tanking their popularity are housing and immigration, particularly for young people, who see a connection between those two issues. Older people don't care so much and are happy to see their property values rise (property values have risen far out of proportion to incomes in recent decades). However, this new tax rule is being promoted in the name of generational fairness.
This makes no sense. The Liberals have dramatically increased the immigration rate, which certainly has inflated property values. There are good arguments to defend this, among them that the higher property values are a net gain for Canada since the vast majority of property is owned by Canadians and most Canadians are homeowners. It really only hurts renters whose parents aren't homeonwers and therefore won't inherit that wealth. Most young Canadians, even if they rent, have parents who are benefiting from this and therefore shouldn't really complain (although they do). Now, the government is doing the one thing that messes this up: they're redistributing much of those gains to the younger generations who include, in very large and increasing numbers, immigrants and their children. What is the point of inflating asset prices with immigration if you're just going to redistirbute the gains to those immigrants? If your goal is to be maximally charitable to immigrants, fine, but this is not in the best interests of Canadians.
The tax increase does exempt primary residences, but not other assets like secondary residences, and the reason for this tax increase is to fund the enormous increase in spending on things like subsidies for new home buyers and affordable housing. The deficit has ballooned to $40 billion dollars under Trudeau and I think the government is actually starting to get desperate and trying to think of ways to raise revenue without spending political capital. Corporations and trusts will also pay this higher capital gains tax. This will reduce business investment. The tax seems calculated to actually raise a fair bit of money while minimizing the number of people who think they'll have to pay it.
Is this actually true? Where I live the boomers are mostly upset about how the increase in housing costs is affecting young people, with blue tribe boomers thinking it’s unfair and red tribe boomers thinking it delays growing up, and there’s a near universal consensus that taking the hit to property values is worth it to reduce housing cost.
I’ve also seen plenty of old people complain that the concomitant rise in property taxes is increasingly burdensome, especially for those on a fixed income. Sure, their kids may see more money when they die (realistically, the nursing home will probably eat most of the proceeds), but that does nothing to help them here and now.
The rise in property taxes has nothing to do with the rise in property values, and everything to do with bloated & useless municipal governments spending beyond their means. If more boomers understood this, maybe we would have less cities run like Toronto and Vancouver.
Yes, there is no reason why am increase in property values should mean an increase in property taxes. Cities don't need more money just because property values are higher. They should fall and as a percentage of property values when property values rise.
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In some sense that’s true, but as long as property taxes are based on a certain percentage of a property’s assessed value, when that value goes up, the taxes do too. Obviously the government could lower the rate, but inertia makes that unlikely.
They do it yearly around here -- property values have about doubled since 2020, and I can assure you that municipal budgets have not. It's more like 'create a (bloated) budget and divide by total assessed values; everyone pays that percentage' than 'multiply assessed values by X% and bloat the budget to match'.
Either you live in a very unusual place, or are suffering under a very common misconception of how property taxes work:
https://www.mpac.ca/en/UnderstandingYourAssessment/PropertyAssessmentandPropertyTaxes
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In New Jersey and many other US states (not California, and I have no idea about Canada), property taxes are NOT based on a percentage of property's assessed value, though they are expressed that way. Instead, a municipal budget is constructed and the revenue required for that budget apportioned among the properties according to their assessed values. Doubling all the property values uniformly without changing the municipal budget would not change property tax; it would halve the tax rate.
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