Mr. Speaker, in response to part (a) of the question, this figure was estimated using historical information on individual, including trust, and corporate tax filings to project capital gains realizations in future tax years, i.e. ending in 2024 through 2029, using the Department of Finance’s forecasting and simulation models.
Adjustments were made to the baseline projections of capital gains realizations to account for some filers choosing to realize capital gains prior to the effective date of June 25, 2024, leaving less capital gains in future years that would have otherwise been subject to the higher inclusion rate had they not been pulled forward.
The simulation models account for, among other things: changes in the inclusion rate on net capital gains and stock options subject to the $250,000 threshold, the inclusion rate for allowable business investment losses, adjustment factors applied to net capital losses of prior years, Alternative Minimum Tax calculations, and the value of the lifetime capital gains exemption.
In addition, it was assumed that the higher inclusion rate for corporations would result in a reduction in the capital dividend account, and a greater value of taxable dividends paid out by corporations to be taxed in the hands of individuals.
Furthermore, an adjustment factor was applied to the model output to account for additional behavioural responses to the reform, i.e. retiming of capital gains realizations across years after 2024, changes in the allocation of assets to fixed income investments.
As for part (b), the Department of Finance’s modelling tools leverage historical personal, trust and corporate income tax filing data from the Canada Revenue Agency.
The growth rates for key income variables, including capital gains and stock options, are based on the same departmental projection model that is used to forecast key fiscal and economic variables for the federal budget.