In April 2024, Minister Girard decided to follow in Ottawa’s footsteps and increase the capital gains tax to align Canadian and Quebec taxation.
Capital gain is the profit made on the sale of fixed assets, such as shares, a chalet, land, rental accommodation or even bonds, indicates the National Bank.
Previously, Canadians had to pay taxes on half (50%) of gains above $250,000 made on the sale of these assets. On the other hand, since June, two thirds (66.7%) of gains are taxable.
However, no bill to increase taxation on capital gains has been tabled in Ottawa, let alone adopted, mentions Renaud Brossard, vice-president of communications at the MEI. The Canada Revenue Agency still applies the tax increase before the law is passed.
The increase in federal capital gains taxes is currently navigating through troubled waters.
It was raised in a ways and means motion, but it never received royal assent due to parliamentary obstruction which paralyzed the work of the House of Commons.
Then, when Justin Trudeau announced his resignation, he asked to prorogue Parliament until March 24, 2025. This means that all parliamentary work is suspended until that date and that motions without royal assent must be reintroduced when work resumes.
“Essentially, we should start the process from scratch in the new parliamentary session. The prorogation of parliament as well as the minority nature of the current government therefore make it unlikely that a law to this effect will be passed between now and the next elections,” asserts Mr. Brossard.
The latter doubts that the Liberal Party of Canada will move forward with this measure since Liberal MPs, like Anthony Housefather, are already putting pressure on leadership candidates to commit not to increase taxes on capital gain.
And on the other side of the political spectrum, Conservative Leader Pierre Poilievre would cancel this increase if he became Prime Minister of Canada.
“Minister Girard should face the facts that Ottawa will not follow and that he must back down before Quebec strengthens its title as the province that taxes investment the most in the country.”
-— Renaud Brossard, vice-president of communications at the MEI
“As the objective was to harmonize the federal and provincial tax system, this measure should not be found in the next Quebec budget in March 2025,” he adds.
More difficulty attracting investments
Renaud Brossard fears that the Quebec economy could suffer if the Minister of Finance moves forward with a 66.7% tax on capital gains in his next budget.
“It would make us less attractive than the other provinces, since we already have difficulty attracting investments to Quebec. This is particularly why we give a lot of money in subsidies to attract foreign investments,” he mentions.
The MEI gives as an example the case of Northvolt, presented as the largest industrial project in Quebec for more than a decade.
To attract the Swedish start-up to Quebec, the provincial and federal governments have promised combined aid of approximately $2.74 billion for the construction of the factory, in addition to putting on the table subsidies totaling a little more than 4.5 billion for battery production.
Loss of more than 400,000 future jobs
The controversial increase in the capital gains inclusion rate was initially intended to tax around 40,000 individual taxpayers and 307,000 companies.
However, a recent publication from the CD Howe Institute, produced by economist Jack Mintz, estimates that more than 1.26 million Canadians would be affected during their lifetime.
“It would not just be a tax on the rich,” says Mr. Mintz. Many middle-income Canadians would bear the brunt of this increase, and the costs would ripple throughout the economy.”
The economist’s report predicts that the proposed increase would ultimately cause significant damage, such as reducing the capital stock in Canada by $127 billion, a drop in GDP of $90 billion and a reduction of 414,000 positions.
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