Pierre Poilievre, leader of Canada’s Conservative Party, has pledged to roll back the recently announced increase in the capital gains inclusion rate if elected. In a social media post on Thursday, Poilievre criticized the tax as a “bad idea” even before U.S. tariff threats and called it “outright insanity” in the current economic climate.
This announcement comes as Poilievre’s party enjoys a strong polling lead over the incumbent Liberals, with the promise likely to resonate with businesses and high-income earners affected by the tax hike.
Background
The Liberal government, under Prime Minister Justin Trudeau, introduced the capital gains tax hike in the federal budget last year. Effective June 25, 2024, the inclusion rate for taxable capital gains was raised from 50% to two-thirds. The change affects individuals earning gains above C$250,000, as well as corporations and trusts, with certain exceptions.
The policy was projected to generate significant revenue, with Canada’s fiscal watchdog estimating C$17.4 billion in additional income tax between 2024 and 2029. However, the proposal faced sharp criticism from business groups and opposition politicians.
Impacts
The increased inclusion rate has sparked concerns about its potential impact on job creation and investment. Poilievre cited a report from the C.D. Howe Institute, which estimated the tax change could result in the loss of 414,000 jobs.
The Conservative leader has also argued that the tax will hurt economic growth while failing to address Canada’s fiscal challenges. He pledged to find savings elsewhere to reduce the federal deficit, which is projected to reach C$48.3 billion in the 2024-2025 fiscal year, or 1.6% of GDP.
Provincial Revenues
Provinces like Ontario and Quebec are poised to benefit from the capital gains tax hike. Ontario’s fall economic statement projected C$900 million in personal income tax revenue and C$2.4 billion in corporate tax revenue from the measure between 2024 and 2027.
In Quebec, the tax is expected to generate C$2.5 billion over five fiscal years, with nearly C$1 billion anticipated in 2024-2025 alone.
Provincial finance officials have acknowledged the uncertainty surrounding the tax’s future. Quebec Finance Minister Eric Girard suggested that any changes introduced by a future government would likely apply prospectively rather than retroactively, ensuring already collected revenue remains in government coffers.
Parliamentary Challenges
The capital gains tax hike has yet to be enshrined in legislation due to Parliament’s suspension and political uncertainty. Trudeau’s government could face a non-confidence vote when Parliament resumes on March 24, potentially triggering an election.
Alternatively, the Liberals may call an election after their leadership race concludes in early March. Without legislative approval, the tax increase could be reversed if a new government opts not to pursue the measure.
In the meantime, the Canada Revenue Agency (CRA) has announced it will administer the higher inclusion rate as proposed, despite the lack of formal legislation.
What’s Next?
Poilievre’s promise to reverse the capital gains tax hike adds another layer of uncertainty to Canada’s fiscal outlook. With the Liberals facing potential electoral defeat and mounting opposition from businesses, the future of the tax increase remains unclear.
For now, the issue serves as a key point of contention between Canada’s major political parties, shaping the economic debate ahead of a likely federal election.
SOURCE – LINK
FAQs
What is the new capital gains inclusion rate?
The rate increased from 50% to two-thirds for certain taxpayers.
When does the tax hike take effect?
The new rate applies as of June 25, 2024.
Who is affected by the tax change?
Individuals with gains above C$250,000, corporations, and trusts.
How much revenue is expected from the tax?
It is projected to raise C$17.4 billion by 2029.
What is Pierre Poilievre’s position on the tax?
He has pledged to reverse the tax hike if elected.
