A new study casts doubt on the idea that high capital gains taxes discourage businesses from investing. According to the Institute for Socioeconomic Research and Information (IRIS) and the Center for Future Work (CFW), the best period for technology investment in Canada is when the inclusion rate exceeds 60%.
Effective June 25, the taxable share of capital gains on property sales for corporations and trusts is now 66.7%, up from 50%. For individuals, the same inclusion rate applies only to the portion of capital gains (sales of shares or real estate) realized in the year that exceeds $250,000.
Many voices in the business world have been raised against this tax measure announced in the last federal budget in the spring. Stakeholders representing the entrepreneurial community believe this will harm the Canadian economy and slow investment in the country.
The study was co-published on MondayIRIS And the CFW Rather than implying that Corporate investment cost is different from capital gains tax
.
Based on data from Statistics Canada, the two firms observed the largest technology investments in the country at 66.7% or 75%, respectively, between 1988 and 2000.
Canadian businesses spend about 7 or 8% of total spending on machinery, tangible assets and intellectual property. GDP of the country during this period.
According to the study, this share stabilizes at 6% between the years 2000 and 2024, when the enrollment rate drops to 50%.
Secondary variable
Scientific literature Unanimously, a company's tax policy is one factor among many other factors that influence investment decisions
says researcher Colin Pratte atIRIS.
In fact, this is often a secondary variable that comes after other considerations, so changes considered for businesses are not detrimental to the Canadian economy.
He managed in an interview.
According to him, the new enrollment rate indicates Catching up after decades of economic decline
.
Since 1980, the corporate tax rate in Canada has decreased by 60%. Compared to the G7 countries, Canada has the lowest effective corporate tax rate. This is around 15%, while the G7 countries average is 25%.
Today, Canada is an attractive tax haven for businesses because the current regime is business-friendly.
The researcher stated.
“The current regime is complacent towards businesses,” says researcher Colin Pratte. (archive photo)
Photo: Radio-Canada / Ivanoh Demers
l'IRIS And the CFW It has also been argued that the companies making the most capital gains come from the financial and real estate sectors. Environments with track records in terms of employment generation Very poor
Mr. Pratte said.
In 2022, various arbitrage activities will bring in capital gains of about $30 billion, which is more than one-third of the entire economy, the study suggests.
In the same year, real estate accounted for more than a quarter of capital gains with a total of $23.5 billion, accounting for $5.8 billion for the construction sector.
1.5% are wealthy
This study attempts to dispel several misconceptions or arguments surrounding the new capital gains tax. In particular, she argued, the shift would hurt the middle class.
Among individuals, those most affected are taxpayers with the highest incomes, earning more than $250,000. [par année]. Most of them (61%) had personal capital gains in 2021. According to the report, on average they recorded a profit of about $360,000 after the sale of assets.
Among taxpayers with income between $100,000 and $250,000, the average drops to $38,000. In the $50,000 to $100,000 bracket, the total is less than $13,000.
To be affected by the measure announced by the federal government, capital gains must exceed $250,000. So, we are well below this limit
Mr. Pratte argued.
People who can claim to have more than $250,000 in capital belong to the wealthiest 1.5% of society.
According to the researcher, the change in enrollment rate will benefit the middle class.
The additional tax amounts that the state receives from the wealthiest members of the society can be reinvested for the population or in better services. [permettre] Government investment to address the crises of our time, be it the cost of living crisis, the housing crisis or the environmental crisis
Mr. Pratte said.
The Trudeau government estimates the move will bring more than $19 billion to the coffers over five years. The Parliamentary Budget Officer calculated the additional funding would be in the order of $17.4 billion.
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