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Canada's bold capital gains tax reforms spark criticism, controversy

Published 2024-04-19, 03:48 p/m
© Reuters.  Canada's bold capital gains tax reforms spark criticism, controversy
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Proactive Investors - In a bid to address pressing economic challenges and stimulate investment, the Canadian government has unveiled proposed changes to capital gains taxes in its 2024 budget.

Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the measures, projecting a revenue boost of $21.9 billion over five years.

Under the proposed adjustments, the inclusion rate on capital gains realized annually above $250,000 would increase from one-half to two-thirds. This change is expected to impact individuals, corporations, and trusts, leaving many Canadians facing a heftier tax bill.

The government's budget, presented by Freeland on April 16, 2024, includes other significant tax initiatives aimed at stimulating investment, supporting entrepreneurship, and enhancing tax fairness while addressing environmental concerns and infrastructure development.

Unsurprisingly, it’s the changes to capital gains taxes that have prompted sharp reactions from business leaders and investors in the country.

Laurent Ferreira, CEO of National Bank of Canada (TSX:TSX:NA), expressed concern that the tax hike could dampen investment, innovation, and wealth creation in the country, potentially widening the gap between Canada and the United States.

In response to the proposed changes, the Prospectors & Developers Association of Canada (PDAC) has called for adjustments to counterbalance the tax increase.

“Such an increase will reduce the amount of available capital for junior exploration and development companies and create major headwinds for investment into Canadian industry more broadly,” the organization said in a statement earlier this week.

“Without careful consideration, the proposed tax increase could put us on track to fall short on the critical mineral and other federal strategies, and we cannot risk losing momentum in building our capacity to discover and connect new mineral deposits to domestic supply chains.”

The proposed capital gains tax adjustments are slated to take effect pending approval from the House of Commons and the Senate.

Other changes unveiled in the budget include:

  • Raising the lifetime capital gains exemption to $1.25 million and introducing a new 1/3 inclusion rate for up to $2 million of certain capital gains realized by entrepreneurs.
  • Confirming previously announced alternative minimum tax proposals, effective January 1, 2024, with adjustments to soften the impact on charitable donations.
  • Providing details for the clean electricity investment tax credit and introducing accelerated capital cost allowance for certain rental housing construction.
  • Allowing immediate expensing for the cost of certain patents, computer equipment, and software.
  • Granting additional information gathering powers to the Canada Revenue Agency (CRA).

Read more on Proactive Investors CA

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