Madam Speaker, the federal government's 2024-25 budget included an important reform to the taxation of capital gains. Changing the way we tax capital gains is something that has been called for by progressive voices in this country for decades.
Capital gains occur when an asset is sold for more than it costs to acquire and maintain. However, there are a number of very important exceptions to this rule, including Canadians' principal residences and other types of assets.
Capital gains are generally heavily concentrated among high-income Canadians, more so than any other form of income. Making matters worse, they benefit from lucrative tax preferences. Until this year and this change, recipients only had to declare half their capital gains on their income tax, which is the so-called inclusion rate of 50%, and the other half was entirely tax-free. Therefore, if a person bought an asset for half a million dollars and sold it for a million dollars, half of that $500,000 profit was completely tax-free. This could be a second home, a building or stocks.
In contrast, other forms of income, such as wages and salaries, must be fully reported on a tax return. I think Canadians are well aware of that. In other words, the inclusion rate for salaries and wages is 100%. Teachers, waitresses, firefighters, truck drivers, plumbers, office workers and cleaners have to declare and pay tax on 100% of their income, as does pretty much every person who goes to work every day and has a job. However, people who are trading stocks, selling secondary residences or selling large assets do not. They only have to declare half of their profit, and the other half goes in their pocket tax-free.
The federal budget announced a change in the capital gains inclusion rate. As of June 24 of this year, it rose to 66.7% for capital gains inclusion declared by corporations. This means that, instead of sheltering 50% of their profits, corporations can now only shelter one-third. However, they still get to shelter one-third of their profits.
The inclusion rate for individuals remains at 50%, the way it has always been for many decades, for all capital gains under $250,000. It will be increased to 66.7% for any capital gains declared above $250,000 in a single year. In other words, half of the capital gains for an individual is still tax-free under $250,000, and a third of their capital gains above $250,000 is still tax-free. Therefore, the tax benefit to capital gains in this country is still lucrative, just modestly less so.
Now, the number of individuals directly affected by this change is very small. Canada Revenue Agency data indicates that only about 0.1% of tax filers, which is about 40,000 people in this country, report over $250,000 of capital gains per year. The proportion of Canadians who would declare over $250,000 in capital gains in any year in their lives is also very small.
While the number of Canadians significantly affected by this change is small, these Canadians are mighty. This reform, which has been advocated for many years by tax specialist and equality advocates, as I said, will primarily have an impact on the richest Canadians. They are very powerful, as are their allies and advisers in the financial sector. Therefore, this new policy is being aggressively resisted by an alliance of wealthy Canadians, financial advisers and Conservatives.
The Conservative leader has promised to reverse these capital gains tax reforms, and he is trying to start a broader revolt against taxes in general and the public programs they pay for. The campaign against capital gains tax reform has relied on scare tactics and outright misinformation about who will be affected, how much extra they will pay and even why capital gains are taxed at all. In fact, the reason we are here tonight is that the Conservatives have decided to move a motion with some 360 recommendations. These were made to the finance committee before the last budget, the one that was introduced here in April. These come from recommendations that were made in February as a way to stall the introduction of a ways and means motion that would pave the way for these capital gains inclusion changes. That is why we are here tonight: The Conservatives are stalling tax fairness.
New Democrats believe, as the Carter commission in the 1960s found, that a buck is a buck is a buck, and that is how taxes should work. It should not matter whether one gets their income in the form of a dividend or a capital gain, or through their hard work in a salary or wage; it should be taxed the same. That is the principle that came out of the royal commission in the 1960s.
However, the Conservatives are doing the bidding of the wealthiest people in this country, people who have capital gains over $250,000. They do not want that money to be taxed the same way that wages are.