Six of Canada’s biggest business and industry associations, including the Canadian Canola Growers Association (CCGA), have written a joint letter to Deputy Prime Minister and Finance Minister Chrystia Freeland asking her to scrap a proposed change to capital gains tax announced in the federal budget last month.
In addition to the CCGA, the May 9th letter is signed by the Canadian Chamber of Commerce, the Canadian Federation of Independent Business, Canadian Manufacturers and Exporters, the Canadian Venture Capital and Private Equity Association, and the Canadian Franchise Association.
The government is planning to increase the inclusion rate — the taxable portion — of annual capital gains from 50 per cent to 67 per cent, effective June 25, 2024. The measure is expected to raise government revenues by around $20 billion over the next four years.
“While this proposed measure attempts to provide a solution to Canada’s deficit, it is shortsighted and complex, and it sows division at a time when we need a Team Canada approach to economic growth,” the groups say.
While the 2024 budget was presented by Freeland and the Liberal government as addressing younger Canadians’ concerns about generational fairness, the industry organizations say the government “should consider the actions we are taking today at the expense of our future prosperity.”
In farming circles, there are specific concerns the measure will not improve generational fairness, as the higher capital gains tax burden could be passed on from sellers to buyers, making it more expensive for young farmers looking to expand.
“Put simply, this measure will limit opportunities for all generations and make Canada a less competitive, and less innovative nation. At a time when we are already urgently struggling to reignite our nation’s lagging productivity, increasing taxes on productive investments and throttling Canadian potential will have profound, long-lasting and potentially irreversible repercussions,” the letter says.
The government says the higher capital gains inclusion rate will only apply to 12 per cent of corporations and 0.13 per cent of personal income tax filers, but it’s expected to bring in around $20 billion in new tax revenue over the next four years.
While the government says the higher inclusion rate will only apply to 12 per cent of corporations and 0.13 per cent of personal income tax filers, the groups say this is misleading, and that one in five Canadians will be directly impacted over the next ten years, and that all Canadians will feel the effects directly or indirectly.
The Business Council of Canada, which represents CEOs and business leaders, sent its own letter to Freeland on May 9th, voicing concerns the capital gains tax change “will further undermine Canada’s ability to attract investment and talent – effectively inhibiting strong and sustained economic growth.”
“More importantly, we believe the debate over capital gains taxes overshadows an even greater issue of concern – that the government’s fiscal framework is unsustainable,” wrote Business Council CEO Goldy Hyder. “No tax increases would be required if the government reduced its planned spending and took proactive measures to stimulate growth, such as removing regulatory barriers.”
Freeland has signaled she is planning to table separate legislation for the capitals gains tax changes outside of the omnibus budget implementation bill that was introduced in late April.
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