February 18, 2017

Advocacy Action Alert: Capital Gains Increase — Federal Budget

Please review the Briefing note below, the basis for our Capital Gains Increase — Federal Budget Alert. Our goal is to prevent any increase in Canada’s capital gain taxation levels, a measure which would diminish the reward for entrepreneurial risk-taking and reduce the number of entrepreneurs and innovators and the investors that support them.

Your action is to circulate this alert to peers and local media and then contact your member of Parliament to express your concerns: (http://www.parl to.gc.ca/Parliamentarians/en/members?view=List).

Please contact CATA at
info@cata.ca to indicate any interests you may have in helping advance CATA’s Tax Advocacy.

Briefing Note: Capital Gains Tax Increase Impact

Fraser Institute Research Findings

“ Capital gains taxes reduce the return that entrepreneurs and investors receive from the sale of a business. This diminishes the reward for entrepreneurial risk-taking and reduces the number of entrepreneurs and the investors that support them. The result is lower levels of economic growth and job creation. …Analysing the stock of venture capital and tax rates on capital gains from 1972 to 1994, Gompers and Lerner found that a one percentage point increase in the rate of the capital gains tax was associated with a 3.8 percent reduction in venture capital funding.” (Fraser Institute

CATA CEO’s Facebook Live Advocacy Update
(Capital Gains Advocacy Alert, Procurement & Public Safety): https://vimeo.com/catatechnow/cata-advocacy 

New taxation of capital gain: it could hurt!   (Les Affaires, 17/02/2017, translated with Google)

There is a growing rumor that the inclusion rate for capital gains could rise from 50% to 75% in the next federal budget. If this turns out to be true, you could be hard hit.

I have heard for several days, left and right, that the inclusion rate of capital gains could increase. It seems to me that it is a déjà vu. Yeah … last year the same thing at the same time … Yet, nothing happened.

Is it still a rumor that will disappear, like the employer’s premium on group insurance, or is it more serious?

There is no smoke without fire. And I tend to believe, in this case, that the fire is not far away.

Given the state of public finances at the federal level, it would not be surprising to see this measure that could bring in billions of dollars to the government. And wildly more … Zip! Like a “plaster” that must be pulled out. The faster, the less the impact is felt.

If you sell a property for more than you paid for it, the increase in value is generally called a “capital gain” and is included in your income at a 50% rate. Some exceptions exist where no additional income is triggered by the sale of goods. This includes the gain/profit on your principal residence and the first $ ($ 835,716 in 2017) of gain/profit on small business shares or the first $ 1 million gain on farm equipment.

You wonder what is not exempt?

A second home (cottage or other), land, shares listed in stock exchanges, units of mutual funds, works of art, collections, jewelry …

In fact, ANYTHING! It’s simple, is not it?

The surplus value is added to your income at the rate of 50%. Since you already have other income, this extra income can be taxed at higher tax rates.

For example, you purchased your cottage $ 12,000 in 1982 and you sell it today for the tremendous amount of $ 246,000. Half of the $ 234,000 in earnings, or $ 117,000, will be added to your salary and other income on your next tax return.

According to my calculations, if your salary is $ 100,000, the tax you would have to pay in 2017 (single person, no benefits, etc.) would be $ 29,572. Adding $ 117,000 of taxable income would result in a tax of $ 87,356, or $ 57,784 more! By translating this amount as a percentage of $ 117,000, it is 49.4%.

The beauty of the 50% inclusion rate is that the percentage should be expressed in terms of the $ 234,000 and not the $ 117,000. The capital gain tax rate is thus actually half of 49.4%, or 24.7% based on our example.

What is proposed would increase the inclusion rate to 75%. The taxable gain would thus rise to $ 175,500 … And how much tax? $ 88,967! A nice difference of $ 31,183 …

So if you were thinking of selling your cottage this summer, I would hurry before the next budget … soon! quick! The possible tax savings is certainly worth a few shots at your cottage.

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The Canadian Advanced Technology Alliance (CATAAlliance) is Canada’s One Voice for Innovation Lobby Group, crowdsourcing ideas and guidance from thousands of opt in members in moderated social networks in Canada and key global markets. (No Tech Firm Left Behind) Contact: John Reid at jreid@cata.ca