Canada’s proposed capital gains tax changes were notably absent from the motion the Liberal government tabled earlier today to introduce Budget 2024 in the House of Commons.
These changes, which include a hike in the inclusion rate on capital gains from one-half to two-thirds, an increase to the Lifetime Capital Gains Exemption, and a new incentive for entrepreneurs, have drawn significant backlash from the country’s technology leaders.
“One straightforward reason for not having the capital gains tax changes in the budget implementation bill would be that the government has not yet written them.”
William Robson, CD Howe Institute
During a press conference today, Finance Minister Chrystia Freeland reiterated the federal government’s support for these measures but dodged questions from journalists about why today’s motion did not include them. It now appears as though Freeland intends to ask Parliament to approve them in separate legislation.
“We are very committed to the capital gains measures that we put forward in the budget,” said Freeland, who noted that “further details and implementing legislation will be forthcoming,” but did not offer a specific timeline or shed any further light on why they were excluded from today’s motion.
When asked if she had excluded these capital gains tax measures from this bill to force the Conservatives to vote on this specific issue, Freeland said “No,” and then smiled.
The motion includes many of the other measures announced in Budget 2024. The federal government reaffirmed its plans for the new capital gains measures to be in effect June 25, but has yet to deliver draft legislation or a dedicated technical briefing specifically related to these changes.
Ben Bergen, president of the Council of Canadian Innovators, told BetaKit that it is not clear whether implementing capital gains changes through separate legislation is an act of “political football,” or simply indicates that the government has “not done its homework” on what the capital gains changes will actually mean for the economy.
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“[This government] really struggles at some of the most basic elements of execution, and whether or not they’re able to deliver it on the 25th [is a] question mark,” Bergen said. “But given what we’ve seen so far from this government over the last eight years, don’t hold your breath.”
“One straightforward reason for not having the capital gains tax changes in the budget implementation bill would be that the government has not yet written them,” CD Howe Institute CEO William Robson told BetaKit.
“The budget promised only more detail on the rules before the higher rates take effect on June 25th. We may not have clarity even then,” Robson added. “The government might think this is good politics. It is lousy tax policy.”
BetaKit has reached out to the Ministry of Finance for comment on why these changes were excluded from today’s motion, when it is planning to share the full details of these changes and introduce legislation for them, and whether it expects such legislation will be implemented by June 25, when the changes are set to come into effect.
These capital gains tax changes are designed to finance billions in new spending on housing and other priorities and increase tax fairness between middle-class and wealthy Canadians. Freeland described them as the “fiscal foundation” for the government’s other investments.
“Our view is it is absolutely fair to ask those in our country who are at the very top to contribute a little bit more, and that is why we put forward a plan—which we are absolutely committed to—to increasing the capital gains inclusion rate,” said Freeland.
But many Canadian tech leaders are angry about them: more than 2,000 have signed an open letter calling on the feds to reconsider, arguing that they will stifle tech entrepreneurship and investment and exacerbate Canada’s existing productivity challenges.
In a recent op-ed for The Globe and Mail, Robson said the next two months would likely be a “scramble” as the government looks to release the rules before June 25. Robson argued the government should either “back the budget’s capital gains tax proposals with rules or abandon them.”
Robson also noted that the government might not be worried about meeting its deadline. “The June implementation of a higher inclusion rate that is retroactive—affecting past gains, not just those that accrue in the future—matters more to its revenue plans than the permanent changes,” Robson wrote.
Bergen added that leaving the capital gains measures to a vote means it is possible the government is looking to “line up political parties” by positioning the Conservatives to vote against the measures. On the other hand, he said, this could be indicative of the government looking to “remove the problem child” from the budget, given the extensive—but not universal—backlash from Canadian tech leaders and others.
Bergen noted that the impact of these measures on companies, workers, and investors will be very dependent on how the new rules are set up. “The fact that we have so much ambiguity and chaos in this process is again just another indication of where this government is,” he added.
Feature image courtesy Wikimedia Commons under CC BY 4.0.