(Bloomberg) — Some of Canada’s biggest business groups are calling on the prime minister Justin Trudeau to reverse his government’s plan to increase the tax inclusion rate on capital gains.
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The government should cancel the proposed tax increase, wrote six major industry associations, including the Canadian Chamber of Commerce and the Canadian Venture Capital and Private Equity Association, in a letter Thursday to the Finance Minister. Chrystia Freeland.
“We call on the government to follow the advice of many of Canada’s most respected leaders and commit to eliminating reckless inclusion rate increases,” the groups wrote.
In last month’s budget, Freeland revealed plans to tax Canadian businesses and individuals on two-thirds of their realized capital gains, up from half currently. The government said the changes, which are scheduled to come into effect June 25, would impact just 0.13% of Canadians and 12.6% of businesses. For individuals, only earnings above C$250,000 (about US$182,000) are taxed at the new higher rate.
Industry groups dispute the government’s estimates, arguing that one in five Canadians will be “directly impacted over the next 10 years and the effects of this tax increase will be borne by all Canadians, directly or indirectly.”
The letter adds to a chorus of groups criticizing the planned tax increase. The Canadian Medical Association also opposes the changes, saying many doctors who incorporate their practices will face a higher tax burden. More than one in ten Canadians own an investment property, according to a Royal Lepage report, and will pay more if it sells for a big gain. Primary residences are exempt from capital gains taxes in Canada.
“If enacted, this change will have significant impacts, including making it more difficult for Canadians to access doctors, limiting employment opportunities and making the prospect of starting, growing or succession planning a business more difficult, especially for multi-generational companies, such as farms, fisheries and small businesses,” the groups said.
Read more: Companies say tax moves in Canada pose risks of a deeper drop in productivity
The other four industry associations that signed the letter are the Canadian Manufacturers and Exporters, the Canadian Federation of Independent Business, the Canadian Franchise Association and the Canadian Canola Growers Association.
“Our country must end its dependence on tax-and-spend politics, which is undermining innovation and growth to the detriment of Canadians today and future generations,” the groups wrote.
The tax change is expected to generate revenue of C$19.4 billion over a five-year period, the government estimates. That money can help contain deficits even as the government increases new spending, including measures designed to help with housing affordability and improve young people’s prospects.
Freeland did not include the tax change in his main budget bill on April 30, saying he plans to introduce standalone legislation for it.
In a separate letter sent to Freeland on Thursday, the Business Council of Canada said it was concerned that the proposed changes would further harm Canada’s ability to attract investment and talent and inhibit economic growth.
“More importantly, we believe the debate over capital gains taxes obfuscates an even larger issue of concern – that the government’s fiscal framework is unsustainable,” he said.
“Tax increases would not be necessary if the government reduced planned spending and took proactive steps to stimulate growth, such as removing regulatory barriers.”
–With assistance from Jay Zhao-Murray.
(Adds letter from the Business Council of Canada.)
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