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Post: The Truth About Capital Gains: How Wealthy Elites Try to Influence Tax Policies
Canada’s Capital Gains Tax Reform: What It Means for Entrepreneurs, Investors, and Fairness
Canada is moving forward with a significant capital gains tax reform aimed at improving tax fairness and raising revenue for social programs. The centerpiece is an increase in the capital gains inclusion rate (the taxable portion of gains) from 50% to 66.7% on large gains, alongside new exemptions to protect small business owners and family properties (Tax Fairness for Every Generation – Canada.ca) (Tax Fairness for Every Generation – Canada.ca). This change has prompted questions and concerns from entrepreneurs, professionals, and families. In this article, we break down the implications of the reform, backed by data and expert insights, and explain why it’s designed to target only the very wealthy while benefiting Canadian society at large.
1. Capital Gains Come from Selling a Business – Not Day-to-Day Operations
First, it’s crucial to clarify what capital gains are. Capital gains are profits from selling an asset (such as a business, stock, or property) for more than its purchase price – they are not the profits from day-to-day business operations (Commentary on 2024 Federal Budget – Centre for Future Work). This means if you’re an entrepreneur focused on running and growing your company, changes in the capital gains tax won’t affect the taxes on your business’s operating income. You pay regular income or corporate tax on business profits; a capital gains tax only comes into play if and when you sell your business or shares for a profit.
For example, a founder might work for years building a startup. During those years, business income and salary are taxed at normal rates. Only when the founder sells their ownership stake (entirely or partially) does a capital gain occur. The recent reform doesn’t change how active business income is taxed – it only changes taxation at the point of sale of the business (or other assets) and then, only above certain thresholds (Tax Fairness for Every Generation – Canada.ca).
Importantly, the reform includes new relief measures to reassure entrepreneurs. Budget 2024 introduced an enhanced Lifetime Capital Gains Exemption (LCGE) for small businesses, increasing it by 25% to $1.25 million (Tax Fairness for Every Generation – Canada.ca). This means an entrepreneur can shelter up to $1.25 million of gain, tax-free, when selling a qualifying small business (or farm/fishing property). In addition, a new Canadian Entrepreneurs’ Incentive will reduce the inclusion rate to just 33.3% (one-third) on up to $2 million of lifetime eligible gains for qualifying business owners (Tax Fairness for Every Generation – Canada.ca). Combined with the higher LCGE, this gives many founders a combined $3.25 million in tax-preferred or tax-free gains on the sale of their business (Tax Fairness for Every Generation – Canada.ca). In fact, once fully phased in, entrepreneurs with gains up to about $6.25 million will actually end up paying less tax under the new system than they would have before (Tax Fairness for Every Generation – Canada.ca).
In short, genuine small business owners and startup founders are not the target of the inclusion rate hike – they are largely protected. If you’re an entrepreneur focused on growth, you shouldn’t be overly worried about this reform. You’ll still enjoy generous tax breaks when you eventually sell your company, and until then, nothing changes for your regular business earnings.
2. Tax Cuts Didn’t Boost Business Investment or Productivity
One of the arguments against raising capital gains taxes is the claim that it would deter investment and hurt productivity. However, historical data shows no correlation between lower capital gains taxes and stronger business investment in Canada. In fact, some of our best periods of productivity growth occurred when capital gains taxes were higher.
(Productivity and capital gains inclusion rates | Canadians for Tax Fairness) Figure: Canadian labour productivity growth rates (blue) versus the capital gains inclusion rate (orange) over recent decades. Notably, the late 1990s – a boom time for productivity at 2.6% annual growth – coincided with the higher 75% inclusion rate. Conversely, after 2000 when the inclusion rate was cut to 50%, productivity growth slowed significantly (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). This indicates that simply giving investors a tax break on capital gains did not spur innovation or efficiency gains.
Multiple studies have found that sweeping tax cuts for businesses and investors since the early 2000s did not translate into the promised investment boom. Canadians for Tax Fairness reports “no evidence that deep corporate tax cuts in Canada over the past 20 years have increased investment or productivity” (). Instead, much of the extra after-tax cash sat as “dead money” – over $700 billion in idle corporate funds – rather than being reinvested ().
Similarly, lowering the capital gains inclusion rate from 75% to 50% in 2000-2001 was supposed to encourage investment, but “far from boosting productivity, [the] lowering of capital gains and other taxes… accompanied an age of decline and stagnation” in productivity growth (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). The Centre for Future Work finds “no historic correlation between capital gains taxes and business investment in machinery, equipment, and intellectual property”, noting that Canada’s strongest sustained technology investment occurred in the 1980s and 1990s, when the inclusion rate was 66.7% or 75% (). In other words, businesses invest when there are profitable opportunities and supportive economic conditions – slight changes in the tax rate on eventual gains have not been a decisive factor.
The bottom line: cutting capital gains taxes has not delivered the advertised boost to productivity or innovation, according to the data. Therefore, restoring the inclusion rate to 2/3 for large gains is unlikely to hurt economic growth. If anything, the revenue can be put to productive use (as we’ll discuss later) rather than remaining as untaxed wealth stored in investment portfolios.
3. Incorporated Professionals (e.g. Doctors): Retirement Savings Remain Secure
Many medical professionals and other professionals incorporate their practices for tax planning reasons. It’s important for this group (doctors, dentists, lawyers, etc. with professional corporations) to understand how the capital gains tax changes affect – or mostly don’t affect – them. The reform is primarily aimed at large asset sales by the very wealthy, and it doesn’t take away the retirement planning tools available to incorporated professionals.
Capital gains exemptions for small business sales will still cover professionals. If a doctor or dentist eventually sells their practice (for instance, selling the shares of their professional corporation to a new partner or an investor), that sale can qualify for the Lifetime Capital Gains Exemption just like any other small business. With the LCGE now at $1.25 million (Tax Fairness for Every Generation – Canada.ca), a substantial portion – if not all – of the gain from selling a typical practice can be tax-free. This is a recent increase (up from about $1 million) specifically to help business owners cash out for retirement without a big tax bill. Above that, the new $250k annual gains threshold and the Entrepreneurs’ Incentive one-third rate can further reduce taxes on the sale if the price is higher (more on these in the next sections).
However, many incorporated professionals don’t actually sell their corporations – they often wind them down upon retirement. In that case, no capital gains tax is triggered at all (since there’s no sale, just withdrawal of assets, which might incur regular income tax on dividends). The inclusion rate hike would be a non-factor.
More importantly, incorporated professionals still have all the standard retirement savings options intact. You can pay yourself a salary from your corporation and contribute to the Canada Pension Plan (CPP) (as both employer and employee), building a CPP retirement benefit. Salary or bonus payments also create RRSP contribution room, allowing you to save in a Registered Retirement Savings Plan – and capital gains inside RRSPs (and pensions) are completely tax-sheltered (Tax Fairness for Every Generation – Canada.ca). If you’ve been taking dividends instead of salary, you might not contribute to CPP or RRSP, but you likely invest some of those after-tax dividends. You can put after-tax funds into a Tax-Free Savings Account (TFSA), where investments grow completely tax-free as well. Capital gains within TFSAs remain entirely tax-free under the law (Tax Fairness for Every Generation – Canada.ca). The new reforms do not change anything about RRSPs, TFSAs, Registered Pension Plans, or other retirement vehicles – those continue to shelter investment gains from tax (Tax Fairness for Every Generation – Canada.ca).
Even within an incorporated practice, professionals often invest surplus earnings. Currently, when those investments are sold at a gain, the corporation only half-taxed the gain (with some refundable tax mechanism). Under the reform, corporate-held capital gains will be 2/3 taxed, but remember: if you’re realizing investment gains inside the corporation, you have control over timing. You could choose to realize gains gradually or after retirement when you might be in a lower tax bracket personally. And if you instead withdraw funds to invest personally, you can utilize TFSAs and RRSPs as mentioned.
For those who do plan to sell a large practice or clinic, there are strategies to minimize tax on a big one-time capital gain. One is the five-year capital gains reserve provision: if you don’t take the full payment upfront, but instead receive it over several years (for example, the buyer pays in installments), you can spread the recognition of the gain over up to 5 years (The Navigator). This could keep each year’s gain under the $250k threshold for the 50% inclusion, or just prevent you from jumping into the top tax bracket in one year. Another strategy is to freeze and family-share the ownership before a sale – e.g. bringing in a spouse or adult child as a co-owner so that two people’s exemptions/thresholds apply to one business sale. Professionals should consult tax advisors for such planning, but the key point is the tools exist to avoid a harsh tax hit, even with a higher inclusion rate.
Lastly, remember that as an incorporated professional you still benefit from the small business tax rate on active business income (a low corporate tax rate on your practice’s income up to $500k per year), which is unchanged by this reform. That’s one way incorporation helps build retirement savings (through tax deferral on reinvested business income). That advantage remains.
Bottom line: A higher tax on very large capital gains does not prevent doctors, dentists, or other professionals from saving for retirement. They still have CPP, RRSPs, TFSAs, and the ability to use the LCGE on any practice sale. The reform is structured so that typical retiring professionals will not be caught by a massive new tax burden – those with modest gains or those using existing exemptions will see little to no change in their tax situation.
4. Family Farms and Cottages: Tax Relief and Planning for Family Properties
Family-owned properties, like farms, fishing operations, and vacation cottages, hold sentimental and financial value. Understandably, families worry how tax changes might affect them. The good news is that the reform explicitly protects these family assets through generous exemptions and thresholds, and existing provisions can further ease any tax impact when passing properties to the next generation.
For farmers: The Lifetime Capital Gains Exemption applies to qualified farm (and fishing) property, and as noted, it is now $1.25 million per person (Tax Fairness for Every Generation – Canada.ca). This means a farmer can have up to $1.25 million in farm appreciation completely tax-free when they sell or transfer the farm. For a farming couple, that could be up to $2.5 million combined if they each own half the farm and each use their LCGE. This sizable exemption goes a long way to allowing family farms to be passed on or sold for retirement without a tax bill. In fact, with the inclusion rate going up in 2026, the government explicitly noted that Canadians with eligible gains below $2.25 million will be better off even after the change (Tax Fairness for Every Generation – Canada.ca) – largely thanks to the bigger farm/business exemption.
Additionally, there are special rollover rules for intergenerational farm transfers. If you’re passing the farm to your children, you often can do so at the farm’s original cost (a tax-deferred rollover), avoiding triggering a capital gain at that point. If selling to your child at fair market value, you can use a capital gains reserve over up to 10 years in such cases (The Navigator), spreading out the gain recognition much longer than the usual 5 years. This helps minimize annual tax and can sometimes let you utilize two separate LCGEs (if, for example, part of the gain is realized in year one and part in year six, after the exemption indexation or increase). The recent reforms didn’t remove any of these special provisions for farms – they remain in place to support farm succession.
For family cottages and secondary homes: Your principal residence (primary home) remains fully exempt from capital gains tax – nothing is changing on the principal residence rule (Government of Canada announces deferral in implementation of change to capital gains inclusion rate – Canada.ca). The focus here is on vacation properties like cottages, cabins, or second houses. The new policy introduces a $250,000 annual capital gains threshold per individual, which means you still get the 50% inclusion rate on the first $250k of gains each year (Government of Canada announces deferral in implementation of change to capital gains inclusion rate – Canada.ca). Only gains above that amount in a year would see the 66.7% inclusion. For a couple selling a jointly owned cottage, this effectively covers a $500,000 gain with no increase in tax (Government of Canada announces deferral in implementation of change to capital gains inclusion rate – Canada.ca) (since each person could apply their $250k threshold).
In practical terms, if you bought a lakeside cottage years ago and it has gone up, say, $400k in value, you can sell it and you’ll still only pay tax on half of that gain (as per the old rule) because the gain is under the threshold. Even if the gain is larger – suppose a $600k gain – only the portion above $500k (in this case $100k) would face the higher inclusion if owned by a couple. The impact on typical family cottages is minimal. The threshold resets each year, so if you have multiple properties or staggered sales, each sale can utilize the available threshold of that year.
Families can also use ownership splitting and timing to their advantage. If a property is co-owned by multiple family members (such as siblings who inherit a cottage and then sell it), each owner can utilize the $250k threshold for their share of the gain. Additionally, like with any large asset sale, you could arrange the sale with payments over several years and claim the capital gains reserve to spread the gain over up to five years (The Navigator). This way, a very large gain can be broken into smaller annual pieces, potentially keeping each piece under the threshold or in lower tax brackets. Tax planning for a cottage sale can significantly reduce the bite of capital gains tax, even under the new rules.
To illustrate: imagine a couple selling a family cottage with a $800,000 unrealized gain. Instead of taking the full payment at once, they might have the buyer pay $160k per year for 5 years (or use an intermediary structure). Each of them claims $80k of gain per year, well within the 50%-inclusion range. They’d end up paying the old rate on all of it. While not everyone can structure a sale this way, it shows that flexibility exists to avoid being pushed into the higher inclusion on one big lump sum.
It’s also worth noting that because the principal residence exemption remains untouched, some families choose to designate a second property as a principal residence for one spouse for a period of time to maximize tax-free gains (this requires careful tax advice due to rules around family unit designation). The government specifically stated that it is maintaining the principal residence exemption in full (Government of Canada announces deferral in implementation of change to capital gains inclusion rate – Canada.ca), so the reform does not encroach on the ability to keep family homes and even some secondary properties free from capital gains tax through prudent planning.
In summary, family properties are largely protected. The lifetime exemption for farms (and small businesses) was raised to record levels (Tax Fairness for Every Generation – Canada.ca), the new per-year threshold shields moderate gains on cottages and rentals (Government of Canada announces deferral in implementation of change to capital gains inclusion rate – Canada.ca), and existing mechanisms like spousal sharing and reserves allow families to minimize taxes on larger gains. Middle-class Canadians will continue to benefit from these exemptions and will not be hit by capital gains tax increases when selling modest assets like a cabin or a piece of land (Tax Fairness for Every Generation – Canada.ca) (Tax Fairness for Every Generation – Canada.ca). The reform is aimed at sizeable investment portfolios and multimillion-dollar asset sales, not the family farm that’s been in the family for generations or the cottage your grandparents built.
5. Why Raise the Capital Gains Inclusion Rate? (Fairness and Revenue for Public Programs)
You might wonder, if lower capital gains taxes supposedly incentivize investment (a claim we addressed above), why would Canada choose to raise the inclusion rate now? The answer lies in tax fairness and the need to fund important social initiatives. There’s broad recognition among many experts and Canadians that the tax system has given capital income (like gains and stock options) a much sweeter deal than employment income, exacerbating inequality (Tax Fairness for Every Generation – Canada.ca). The reform is an attempt to restore balance so that the very wealthy pay a fairer share, comparable to what regular working Canadians pay on their income.
Under the old system, only 50% of a capital gain was taxable. This meant that high-income investors often paid a lower effective tax rate on their investment income than middle-class folks paid on salary. For example, a few years ago a nurse in Ontario earning $70,000 faced about a 30% marginal tax rate on her wages, while an investor realizing $1 million in capital gains in Ontario could end up with a marginal rate of only ~27% on that income (Tax Fairness for Every Generation – Canada.ca). In other words, someone making millions from stocks could pay a lower tax rate than a working professional making $70k – a clear inequity. The government acknowledged “this is not right.” (Tax Fairness for Every Generation – Canada.ca)
What’s more, this capital gains tax advantage is more pronounced in Canada than in any other G7 country (Tax Fairness for Every Generation – Canada.ca). So the idea that Canada was doing something radical by increasing the inclusion rate is misplaced – even after raising to two-thirds, we will tax capital gains on top earners less heavily than many peer nations, and far less than we tax wages or business profits (which are 100% taxable).
Academic economists and tax experts have long suggested that preferential treatment for capital gains leads to tax avoidance games and unfair outcomes rather than real economic benefits. Many support aligning the taxation of capital income more closely with other income, especially to prevent the richest individuals from re-characterizing their earnings as capital gains. Indeed, the data shows the benefits of the old 50% inclusion went overwhelmingly to the rich – the top 1.5% of filers receive about 61% of all individual capital gains (). By contrast, over 99% of Canadians have little or no taxable capital gains in a given year (Tax Fairness for Every Generation – Canada.ca). This reform is targeting that narrow slice of high-income investors. The Department of Finance estimated only 0.13% of Canadians (roughly 40,000 people) would end up paying more tax from the inclusion rate increase (Commentary on 2024 Federal Budget – Centre for Future Work). Everyone else either has no taxable gains or stays below the $250k threshold and thus “99.87% of Canadians… will not see an increase” in their capital gains tax rate (Tax Fairness for Every Generation – Canada.ca).
From a revenue perspective, taxing a greater share of large capital gains is expected to raise substantial funds – nearly $20 billion over five years federally (A stronger Team Canada starts with those most in need), plus additional revenue for provinces (since provincial taxes piggyback on the taxable amount) unless they adjust rates down. This is a significant amount of money that can be put towards public services. Notably, the government has effectively earmarked these revenues to fund new programs that benefit Canadians, including: a national school lunch program to ensure kids don’t go hungry at school, investments in affordable housing, an expansion of dental care (so more families can access free dental coverage), and the first phase of the new Canada Disability Benefit to support persons with disabilities (Commentary on 2024 Federal Budget – Centre for Future Work). In other words, the money raised from those who can most afford it will be invested in programs that enhance the common good – helping children, low-income families, and marginalized groups. This approach follows the principle that those who have benefited the most from Canada’s economy contribute back to help those who need it (Tax Fairness for Every Generation – Canada.ca) (Tax Fairness for Every Generation – Canada.ca).
Crucially, even after the change, capital gains will still enjoy a tax advantage. With a two-thirds inclusion rate, only 66.7% of the gain is taxed. For someone in the top tax bracket (~53% in many provinces), a capital gain will face about a 35% effective tax rate, whereas a dollar of salary faces 53%. So capital gains are still taxed lighter than wages by a considerable margin. The reform simply narrows the gap. The economic rationale for heavily favoring capital gains was always shaky – advocates claimed it spurred investment, but as shown, that hasn’t materialized (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). Meanwhile, there is a strong fairness rationale to treat a dollar of income similarly, whether it’s from working or investing. Even with the inclusion hike, “capital gains (which are highly concentrated among very wealthy individuals) will continue to be taxed less heavily than labour income” and any economic justification for the old treatment is dubious (Commentary on 2024 Federal Budget – Centre for Future Work).
In summary, raising the inclusion rate is about tax equity and funding priorities. It asks the wealthiest to pay a bit more, in line with what others pay on their income, and directs that money to programs that strengthen the social fabric. The move is supported by many economists as a step toward a more rational tax system – one that doesn’t encourage converting income into capital gains just to get a lower rate (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). And for the vast majority of Canadians, it won’t increase their taxes at all – if anything, indirectly it should benefit them through better services funded by those revenues.
6. From Tax Revenues to Social Investment: The Broader Impact
The broader societal impact of this reform comes from reinvesting the additional tax revenue into social programs that improve fairness, opportunity, and health outcomes for Canadians. When the government collects that extra ~$20 billion from mostly high-income investors, it isn’t simply squirreling it away – it’s deploying it in ways that can have multiplier effects for society.
Think of school meal programs: ensuring children get nutritious lunches leads to better concentration and performance in school, setting them up for success. Dental care and health care expansions mean people are healthier and avoid painful, costly problems later on. Housing investments help reduce homelessness and housing insecurity, which has huge downstream benefits – from lower crime to better public health. And a disability benefit can dramatically improve quality of life for persons with disabilities, enabling greater participation in the economy and society. These are not just expenditures; they are investments in human capital and social stability.
There is ample evidence that such social investments pay off. For instance, societies with lower inequality and better social safety nets tend to have better health outcomes and even higher productivity growth over the long term (Productivity and capital gains inclusion rates | Canadians for Tax Fairness) (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). When children aren’t hungry, they can learn and eventually contribute more. When people have housing and basic needs met, they can focus on jobs or education rather than survival. In economic terms, putting an extra dollar into a low-income family’s hands yields more immediate spending in the local economy than a dollar given as a tax break to a wealthy individual (who might park it in an offshore account or stock portfolio) (A stronger Team Canada starts with those most in need). As one analysis noted, “investments in social programs make our economy stronger and often have tremendous long-term rates of return”, whereas a dollar of corporate profit may just boost a CEO’s bonus (A stronger Team Canada starts with those most in need) (A stronger Team Canada starts with those most in need).
This is the “Team Canada” approach – we’re all in it together: those doing well contribute a bit more so that those struggling get support, which in turn creates a more balanced and prosperous society for everyone (A stronger Team Canada starts with those most in need) (A stronger Team Canada starts with those most in need). By contrast, the political opposition to the reform has been rooted in an anti-tax ideology that ignores these broader benefits. The federal Conservative leader has harshly criticized the capital gains tax hike, branding it a “job-killing tax” and even promised to repeal it and launch a “broader revolt against taxes in general (and the public programs they pay for)” (). This rhetoric – essentially an anti-tax, small-government stance – is not new. We’ve seen decades of calls for tax cuts with the assurance that the benefits will “trickle down” to everyone. However, as discussed, those promises often don’t materialize in better jobs or investments; instead we got higher inequality and “trickling up” of wealth.
It’s important to scrutinize such opposition: Who really loses if capital gains on the very rich are taxed a bit more? It’s largely the wealthy themselves. Their claim that society as a whole will suffer (“jobs will vanish, the sky will fall”) doesn’t hold up to empirical scrutiny (Productivity and capital gains inclusion rates | Canadians for Tax Fairness) (). In fact, many of the companies generating large capital gains have poor records on job creation (e.g., sectors like real estate flipping and financial trading) (). So when opponents say we must keep taxes ultra-low on investors to protect jobs, they are often protecting a narrative more than actual workers. Meanwhile, the societal gains from funding things like healthcare, education, and poverty reduction are tangible and significant – and enjoy broad public support.
By raising the inclusion rate, Canada is trying to level the playing field: treating income from wealth more like income from work, and using the proceeds to give more Canadians a shot at a decent life. It’s about enhancing fairness not only in the tax code but in outcomes – reducing inequality in access to services. Numerous public health and economics studies show that when inequality is reduced (even marginally through taxes and transfers), populations tend to become healthier and more productive (Productivity and capital gains inclusion rates | Canadians for Tax Fairness) (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). So, paradoxically, what some call a “tax on success” can actually fuel more broad-based success by building human capital.
In short, the reform isn’t just a tax change in isolation; it’s part of a policy shift to invest in Canadians. The debate it has sparked really asks: Do we grow prosperity from the top down, or from the bottom up? The government’s answer, in this case, is to take a bit from the top and channel it downward, aiming for a stronger foundation for all. That stands in stark contrast to pure anti-tax arguments, which offer tax cuts as a panacea while often neglecting the underfunding of essentials like healthcare or education that results. The latter approach has been tried and led to stagnant productivity and social strain, whereas investing in people has a record of improving economic resilience (A stronger Team Canada starts with those most in need) (A stronger Team Canada starts with those most in need).
7. The Top 1% Push Back: Elite Resistance and Influence on Tax Policy
Whenever tax fairness reforms are on the table, it’s common to see a strong pushback from those with the most to lose – the wealthiest elites and certain business interest groups. The capital gains reform has been no exception. Understanding this dynamic of resistance helps put the heated rhetoric in context.
Prominent wealthy individuals have spoken out against the inclusion rate hike, often predicting dire consequences if it proceeds. For example, billionaire Frank Stronach (founder of Magna International) argued that higher capital gains taxes would “increase the flood of money leaving Canada in search of better returns” ( Investment dollars fleeing Canada | Caledon Citizen ). In an op-ed, he pointed to investors selling off Canadian equities and warned that if we “cage in money” with taxes, investors will simply flee to lower-tax jurisdictions ( Investment dollars fleeing Canada | Caledon Citizen ) ( Investment dollars fleeing Canada | Caledon Citizen ). Stronach’s solution was to dramatically simplify and cut taxes – he suggested treating all income the same (no special rates) but also flat-out lowering rates and eliminating most deductions ( Investment dollars fleeing Canada | Caledon Citizen ). Essentially, his view aligns with a low-tax, minimal government philosophy.
It’s worth noting the irony: Stronach said “all income should be treated the same for tax” ( Investment dollars fleeing Canada | Caledon Citizen ), presumably meaning capital gains shouldn’t be penalized – but currently it’s labour income that was treated worse. Raising the inclusion rate actually moves toward treating all income more equally (just at a higher overall rate than he’d like). In any case, such arguments from elites often center on a threat of capital flight – implying that wealthy individuals will withdraw investments from Canada if taxed more. This threat is sometimes overstated; factors like market opportunities, stability, and infrastructure often matter more than a couple percentage points difference in tax. Moreover, Canada’s changes still keep our tax treatment of capital attractive by international standards (Tax Fairness for Every Generation – Canada.ca) (e.g. the U.S. taxes corporate capital gains at full rates, 100% inclusion (Tax Fairness for Every Generation – Canada.ca), whereas we’ll be at 66.7% for corporations, preserving a comparative advantage). So the claim that no one will invest in Canada doesn’t hold water when, even after reform, our effective tax on gains can be lower than what investors face in the U.S. or Europe for similar transactions (Tax Fairness for Every Generation – Canada.ca).
Beyond individual billionaires, organized business lobby groups have been actively resisting the reform. The Canadian Federation of Independent Business (CFIB), for instance, made opposing the inclusion rate increase a “top priority” and mobilized its members to push for scrapping it (Capital Gains Changes | CFIB ) (A stronger Team Canada starts with those most in need). This, despite the fact that, as we’ve shown, genuine small businesses were largely shielded via the LCGE and new incentives – CFIB’s constituency would not broadly be harmed. The Business Council of Canada also raised alarms, as have various Bay Street financial advisors who worry higher taxes on investments could hit their high-net-worth clients.
Think tanks and lobbyists funded by wealthy donors often churn out opinion pieces and reports warning that Canada must keep taxes on capital low to attract investment. It’s an “alliance of wealthy Canadians, financial advisers, and Conservatives” in the political sphere, which aggressively resisted the capital gains tax changes (). And indeed, their campaign had an effect: after the 2024 budget announcement, implementation was delayed amid political pressure and uncertainty (and as of early 2025, the measure’s fate hung in the balance pending legislation) (A stronger Team Canada starts with those most in need). The intense blowback shows how much influence the top 1% can wield in policy debates – an increase that touched a tiny wealthy minority was made to sound like a disaster for all of Canada.
There’s also a narrative battle going on. Wealthy opponents label the tax reform as an attack on “entrepreneurs” or “family businesses” or claim it will destroy the incentive to invest. We’ve examined those claims: entrepreneurs and family businesses are largely protected, and investment decisions aren’t chiefly driven by capital gains tax rates, especially not for the kinds of windfall gains at issue. The “job killer” label from the Conservative leader is a talking point that, as the Centre for Future Work chartbook shows, doesn’t reflect the reality that many firms realizing big capital gains (like real estate developers flipping properties) do not actually create many jobs () (). It’s important for the public to see through these myths, which are often spread by those with a vested interest. When only 0.1% of Canadians are affected by a tax change, but you hear wails of objection in major media, it’s likely the voice of that 0.1% (or those allied with them) being amplified.
On the flip side, public awareness in favor of tax fairness is growing. Polls in recent years have shown a majority of Canadians support higher taxes on the super-rich or closing tax loopholes. Advocacy groups and economists have been actively debunking misinformation – for example, highlighting that Canada’s inclusion rate was higher for most of its history and the economy did just fine (Productivity and capital gains inclusion rates | Canadians for Tax Fairness) (Productivity and capital gains inclusion rates | Canadians for Tax Fairness). They also point out that the lion’s share of the benefit from the old system went to millionaires, not ordinary Canadians. As these facts become more widely known, it undercuts the elites’ narrative.
One striking aspect is that even some wealthy individuals agree the system should be fairer (for instance, some members of the “Patriotic Millionaires” group or businesspeople who support a wealth tax). But those voices are rarer – more often, it’s human nature to not want one’s taxes to go up. That’s why we see figures like Stronach or others threaten to take their money and go elsewhere. Yet, experience shows most do not actually emigrate over tax tweaks; and if a few do, Canada arguably is better off if that revenue loss is recouped by taxing the remaining wealth here more fairly.
In conclusion on this point, the resistance from the wealthy elite is essentially a defense of the status quo that benefits them. They employ arguments of doom and altruism (“it will hurt the economy/jobs/everyone”) but these arguments are not strongly supported by evidence – they are part of a long-standing ideological battle over taxation. The influence of the top 1% on tax policy is considerable, but ultimately democratic decision-making can prevail if the broader public interest is clearly articulated and understood. Transparency about who truly pays what in taxes (and who doesn’t) is key. Reforms like the capital gains inclusion increase are a step toward a system where the very rich pay something closer to what everyone else pays, which in a democracy is a reasonable expectation. The hope among reformers is that, over time, smarter tax policy leads to a healthier economy and society – one where success is rewarded, but not at the cost of fairness or the common good.
Conclusion
Canada’s capital gains tax reform is a nuanced but important change. It reinforces the principle that income from wealth should be taxed more like income from work, especially for those at the top, while sparing entrepreneurs and middle-class families from undue burden through well-crafted exemptions and thresholds. The historical record and expert analysis suggest that fears of investment fleeing or economies crumbling are overblown – in fact, channeling some of the enormous gains of the wealthy into public investments could strengthen the foundations of our economy.
Entrepreneurs can continue focusing on building their businesses, knowing that when they choose to sell, a sizeable portion of their gain is protected. Professionals can rest assured their retirement planning tools (CPP, RRSP, TFSA) remain untouched. Farm and family property owners still have avenues to pass on their legacy with minimal tax impact. Meanwhile, the extra taxes will come from those most able to pay, and go toward things that make Canada more livable and just for everyone – from child nutrition to dental care to housing.
In essence, this reform is a recalibration: after decades where the pendulum swung toward ever-lower taxes on capital, contributing to inequality, Canada is nudging it back toward greater fairness and shared prosperity. The debate will undoubtedly continue – powerful interests will always resist paying more tax – but if the reform proceeds, Canada could become a case study in how to grow an economy not just from the top down, but from the bottom up (A stronger Team Canada starts with those most in need) (A stronger Team Canada starts with those most in need). And that is a vision of growth well worth supporting.
Sources:
- Canada Department of Finance – Tax Fairness for Every Generation (Budget 2024) (Tax Fairness for Every Generation – Canada.ca) (Tax Fairness for Every Generation – Canada.ca) (Tax Fairness for Every Generation – Canada.ca).
- Canada Department of Finance – News Release on Capital Gains Inclusion Rate Deferral (Government of Canada announces deferral in implementation of change to capital gains inclusion rate – Canada.ca).
- Canadians for Tax Fairness – “Productivity and capital gains inclusion rates” (2024 report) (Productivity and capital gains inclusion rates | Canadians for Tax Fairness) (Productivity and capital gains inclusion rates | Canadians for Tax Fairness).
- Canadians for Tax Fairness – Submission to House of Commons (2018) () ().
- Centre for Future Work – “Fact and Fiction on Capital Gains Taxation: A Chartbook” (2024) () ().
- Jim Stanford, Economist – Budget 2024 Commentary (Commentary on 2024 Federal Budget – Centre for Future Work) (Commentary on 2024 Federal Budget – Centre for Future Work).
- CFIB – Capital Gains Changes Overview (2024) (Capital Gains Changes | CFIB ) (Capital Gains Changes | CFIB ).
- Maytree Foundation – Analysis on tax fairness and social programs (A stronger Team Canada starts with those most in need) (A stronger Team Canada starts with those most in need).
- Frank Stronach – Op-ed in Caledon Citizen (2024) ( Investment dollars fleeing Canada | Caledon Citizen ) ( Investment dollars fleeing Canada | Caledon Citizen ).
- RBC Wealth Management – Capital Gains Reserve Planning (The Navigator) (The Navigator).
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About the Author: Bernard Aybout (Virii8)
