![]() ![]() Table 1 shows the extent of this inequality, based on the most recent data released by the Canada Revenue Agency. (Source: Canada Revenue Agency, T1 Final Statistics, 2017)īecause most capital gains income is realized by high-income taxpayers, these tax preferences are highly unequally distributed. Table 1 Distribution of tax benefits from partial inclusion of capital gains Total income range In all, capital gains income is taxed very lightly in our system – when it is taxed at all. Although there is in principle deemed realization of gains at death, taxpayers can engage in “estate freezes” and other sophisticated transactions to defer capital gains taxes, giving their beneficiaries additional tax advantages. Capital gains tax avoidance also plays a crucial role in estate planning.The deferral of taxation until realization confers a tax advantage, and it also affords investors the opportunity to time gains and losses to reduce taxes. Because a capital gain increases the wealth of the owner, it is a form of income, even if no cash changes hands. Capital gains, when taxed, are taxed on a realization basis that is, only when the asset is disposed of, rather than when the gain accrues.Taxpayers may claim a lifetime exemption from tax on realized gains up to $883,384 on farm properties and small business shares, and gains on principal residences are entirely exempt.Only 50 percent of realized capital gains are included in taxable income, so that the effective personal tax rate on gains is half that of other income. ![]() But capital gains are taxed quite differently than labour earnings and other kinds of ordinary cash income. Capital gains and inequalityĬapital gains are income flows that result from the rise in value of corporate shares and other assets. ![]() ![]() In this Commentary, I address in more detail one aspect of the system: the taxation of capital gains. There have been carefully reasoned proposals for a new annual tax on wealth, and more recently the federal NDP has proposed a tax on “excess profits” during the pandemic.īut before introducing entirely new taxes, why not fix the existing tax system? Recently at Finances of the Nation, my colleagues Ken McKenzie and Allan Lanthier have made a persuasive case that existing design features and loopholes make our system of taxing capital income both inefficient and unfair. There has been much concern about wealth inequality in recent years, with renewed attention during the current economic crisis. Increasing the rate of taxation on capital gains would constitute a simpler, more efficient way of taxing high-wealth individuals compared to other recent proposals for a novel annual wealth tax, and would likely raise more revenue as well. The current tax preference for capital gains costs upwards of $15 billion annually. To address wealth inequality and to improve functioning of our tax system, tax rates on capital gains income should be increased. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |