This is the third in a series of articles in our special report on taxation in Canada. To see all the articles, click here.
The leaders of Canada’s political parties might disagree, but when it comes to arguably the most palpable impact of government on Canadians—taxes—the differences in their platforms are narrow. With one exception—the Conservatives’ so-called Canada First Reinvestment Tax Cut for capital gains—the proposed tax policies of the two parties most likely to form the next government remain remarkably similar heading into election day.
On personal income tax, both the Liberals and Conservatives aim to tinker around the edges of the lowest tax bracket. The Liberals promise to reduce the marginal tax rate on the lowest federal tax bracket from 15 per cent to 14, while the Conservatives say they’ll reduce it further to 12.75 per cent. In addition, the Conservatives aim to increase the Tax-Free Savings Account contribution to an extra $5,000 each year, provided the funds are invested in Canadian businesses.
Both parties would eliminate the consumer carbon tax and the GST on new home purchases—the Liberals for homes valued up to $1 million, and the Conservatives for homes valued up to $1.3 million.
Neither party is offering tax rate cuts for corporate Canada. The Liberals do, however, propose to increase tax credits to encourage investment in exploration for Canadian critical minerals, and they have floated the idea of introducing flow-through shares—already available in the mineral exploration sector and used by philanthropists seeking tax-efficient giving strategies—for high-tech and advanced manufacturing startups.
On the capital gains tax, Liberals and Conservatives agree that Justin Trudeau-era increases to the inclusion rate are dead in the water. The Conservatives’ Canada First Reinvestment Tax Cut policy goes further, however, proposing that no person or business will pay capital gains tax when they reinvest proceeds in Canada within a specified time. In addition, the Conservatives promise to close some loopholes that encourage companies to seek shelters in tax-haven countries.
For its part, the federal NDP has proposed measures to lower income taxes by increasing the basic personal deduction to $19,500 for anyone earning up to $177,882. The basic personal amount would gradually reduce as income approaches $253,414. At that point the basic personal amount would be reduced to $13,500, down from the current $14,538.
The NDP has also proposed a wealth tax aimed at “super-rich multimillionaires” and intended to generate $94.5 billion in new revenue over the next four years. The proposal would see a one per cent tax on households reporting a net worth of between $10 million and $50 million, two per cent for those reporting $50 million to $100 million, and three per cent for those worth more than $100 million.
On the corporate tax front, the NDP proposes a two per cent surtax on corporations earning more than $500 million in profits and a 15 per cent minimum tax on corporate book profits. Further proposals involve closing various tax loopholes and limiting access to overseas tax havens. NDP Leader Jagmeet Singh has also stated that he supports the now-scrapped plans to increase the capital gains inclusion rate from 50 to 66.67 per cent.
What stands out
Looking at the suite of tax proposals announced to date, Jamie Golombek, managing director and head, tax and estate planning with CIBC Private Wealth, singles out the Canada First Reinvestment Tax Cut for its potential benefits to high-net-worth individuals.
“The Conservatives’ proposal to allow a deferral of capital gains tax when the proceeds are invested in Canada would be a huge boon for HNW clients, who may be sitting on substantial accrued gains on various assets but who are reluctant to sell them currently due to the ‘capital gains lock-in effect,’” he says. “The ability to sell and reinvest on a tax-deferred basis would be of huge benefit to these clients.”
Katy Pitch, a partner at Mintz LLP in Toronto, and head of its Canadian tax practice, says the Conservatives’ idea is also notable, though the devil may be in the final details.
“According to the Conservative platform, an individual who sells capital property will defer any capital gains when they reinvest the proceeds in Canada,” Pitch says. “It is not entirely clear to me what ‘reinvest the proceeds in Canada’ means, though. Presumably, it is shares of companies that are formed in Canada or carry on business in Canada—but do they have to be controlled by Canadians or undertake a certain percentage of their business in Canada? It might be that a company must use a certain percentage of its assets in a business carried on in Canada to qualify. The details will be important here.”
As well, the proposed capital gains holiday is supposed to be available only from July 1, 2025, to December 31, 2026, but may be extended if it generates additional domestic business activity.
Whichever party wins the federal election next week, even the most finely honed and well-intentioned tax policy must face the acid test of real-world implementation and economic reality, says Michael Lawrence, senior advising specialist, client needs, Canada with Edward Jones.
“We believe market forces,” he adds, “are more powerful than political forces over the long term.”
The Canadian Family Offices newsletter comes out on Sundays and Wednesdays. If you are interested in stories about Canadian enterprising families, family offices and the professionals who work with them, but like your content aggregated, you can sign up for our free newsletter here.
Please visit here to see information about our standards of journalistic excellence.