A number of Canada’s largest business groups are pressing Prime Minister Justin Trudeau to walk back his government’s plan to increase the tax inclusion rate on capital gains.
The Canadian Chamber of Commerce and the Canadian Venture Capital and Private Equity Association are among two of the six major industry associations to write a joint letter to Finance Minister Chrystia Freeland on Thursday.
“We are calling on the government to heed the advice of many of Canada’s most respected leaders and commit to scrapping the ill-advised inclusion rate increase,” reads the letter.
The group’s letter had initially contained a misleading figure, citing that one in five Canadians would be affected by the tax increase based on a study by Simon Fraser University’s Jonathan Kesselman.
However, the Canadian Press caught the error and the Chamber of Commerce then updated the letter to claim that the hike would affect one in five businesses and not a fifth of the entire population.
Freeland announced plans to tax Canadian companies and individuals on two-thirds of their realized capital gains, an increase from the previous 50%, as part of the Liberals’ latest federal budget.
The changes will take effect on June 25, which according to Bloomberg, will impact 0.13% of Canadians and 12.6% of businesses but could have ramifications for the rest of the economy when it comes to attracting investment.
Only gains over $250,000 will be taxed for individuals under the newly increased rate.
Although not one of the letter’s signatures, the Canadian Medical Association also expressed their opposition to the increase, arguing that doctors who incorporate their practices will now be subjected to higher taxes.
According to a report by real estate firm Royal Lepage, over 10% of Canadians own an investment property, meaning they will have to pay more if they sell for a large gain.
Primary residences are exempt from capital gains taxes in Canada however.
“If enacted, this change will have significant knock-on impacts, including making it harder for Canadians to access medical practitioners, limiting employment opportunities and making the prospect of starting, growing or succession planning a business more difficult, especially for multigenerational businesses such as farms, fisheries and small businesses,” reads the letter.
The Trudeau government estimates the tax increase will generate $19.4 billion in revenue over the next five years which could alleviate deficits, however, the government also announced billions in new spending with their budget.
The tax change is not included within the budget itself, as Freeland intends to introduce separate legislation for it.
“Our country must end its reliance on tax-and-spend politics, which is undermining innovation and growth to the detriment of both today’s Canadians and future generations,” the groups wrote.
The remaining industry associations involved in the joint letter are the Canadian Manufacturers and Exporters, the Canadian Federation of Independent Business, the Canadian Franchise Association and the Canadian Canola Growers Association.
“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,” it continued.
