A lot of Canadians are starting to find out they’re richer than they think, at least according to the taxman.
The way the Trudeau government is pitching its capital gains tax hike, you’d think it’s only affecting Canada’s richest 0.13 percent of taxpayers.
Unless you own your own private jet, you shouldn’t have anything to worry about, right?
And yet, since the changes were first proposed, a large number of stories have emerged in the media regarding everyday Canadians and how they would be affected despite having incomes far below the $203,100 their elected representatives in Ottawa will earn this year.
Those affected include Liz Diachun, a 93-year-old Ontario grandmother who gifted part of her farm to her daughter and grandson and wound up receiving a $40,000 bill from the Canada Revenue Agency.
It includes people like Roch and Rose, two Montrealers who saved up, purchased a duplex in the 1990s, and were banking on its sale to fund their retirement. Together, they earn around $60,000 per year.
While only a small fraction of Canadians declare high capital gains income in any given year, most of those who do only wind up having such large incomes once in a lifetime, when selling assets such as a duplex, a cottage, or a small business.
The best way to understand this is by examining individuals who report high capital gains in a specific year and then analyzing their subsequent tax declarations. This is precisely what Statistics Canada’s Longitudinal Administrative Database does.
In 2011, 25,100 Canadians declared capital gains income of $250,000 or above on their tax forms. Of those, nearly two-thirds never had such capital gains again over the subsequent decade. A further 15 percent only had such gains once more during that period.
In fact, less than one percent of all Canadians who declared such large capital gains in 2011 declared similar gains every year over the subsequent decade.
That’s why the Trudeau government’s claims that this only affects 40,000 taxpayers is so troubling. While it may affect a limited number of people in a given year, the people affected are different every year.
According to calculations by economist Jack Mintz, President’s Fellow at the University of Calgary, it is likely that 1.26 million Canadians will be directly affected by Trudeau’s increase to the capital gains tax over the course of their lifetime.
To put that number in perspective, the increase in capital gains tax will eventually result in higher tax bills for as many Canadians as the current population of the entire province of Saskatchewan. This is significantly higher than the 0.13 percent figure cited by the Trudeau government.
And, of course, that only accounts for those who will be directly affected by a higher tax bill. The impact becomes much more significant when you include those who will be indirectly affected.
Since the change was first announced, the Canadian Medical Association has been warning Ottawa about the potential impact on our ability to retain Canadian physicians. Doctors’ practices in Canada are often incorporated as small businesses, meaning the federal government’s decision to increase taxes on capital gains will also raise taxes for our nation’s doctors.
To be clear, no doctor is at risk of skipping a meal to pay for this tax hike. However, increasing their taxes at a time when provincial governments are struggling to attract and retain them is counterproductive, to say the least. In fact, levying higher taxes on doctors makes it much more attractive for Canadian-trained doctors to take their practice across our southern border, where they would get paid more and taxed less.
This, in turn, would worsen our access to healthcare as we lose more and more treatment capacity.
Whether directly or indirectly affected, it is clear that Ottawa’s capital gains tax hike will impact a significant number of Canadians, including many middle-class individuals.
That’s the thing with Ottawa’s attempts to soak the rich, though: the taxman has a tendency to believe that you’re richer than you think.
Emmanuelle B. Faubert is an economist at the Montreal Economic Institute.
