Amidst a doubling federal debt from $619.3 billion in 2015-16, the first year of the government, to $1.2 trillion last year, and an expected climb to $1.4 trillion by 2028-29, the federal government unveiled its latest budget with promises of significant spending aimed at addressing housing, supporting young Canadians, and other key areas. Finance Minister Chrystia Freeland outlined plans to fund these initiatives through a capital gains tax increase targeting 40,000 of the country’s wealthiest individuals.
“This budget is about fairness for every generation,” Freeland declared, emphasizing the need to ensure that the wealthiest Canadians contribute their fair share to the tax system. Budget 2024 announces the government’s intention to increase the inclusion rate on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and trusts from from 50% to approximately 66.67%, by amending the Income Tax Act, effective June 25, 2024. This means that for capital gains exceeding $250,000 in a year, individuals and corporations will be required to include 66.7% of the gains above this threshold in their taxable income, under the new inclusion rate. The inclusion rate for capital gains realized annually up to $250,000 by individuals will continue to be one-half. Concerns arise as labor force professionals, particularly those earning more than $250,000, may consider moving to other countries due to the increased tax burden. This potential migration of critical job roles poses a risk to the country’s economic stability and growth.
Furthermore, the lifetime capital gains exemption currently allows Canadians to exempt up to $1,016,836 in capital gains tax-free on the sale of small business shares and farming and fishing property. This tax-free limit will be increased to $1.25 million, effective June 25, 2024, and will continue to be indexed to inflation thereafter. In 2025, Canadians with eligible capital gains of below $2.25 million will be better off under these changes.
To encourage entrepreneurship, the government is proposing the Canadian Entrepreneurs’ Incentive, which will reduce the inclusion rate to 33.3 per cent on a lifetime maximum of $2 million in eligible capital gains. Combined with the enhanced lifetime capital gains exemption, when this incentive is fully rolled out, entrepreneurs will have a combined exemption of at least $3.25 million when selling all or part of a business.
Despite the strong emphasis on supporting younger generations, acknowledging their struggles with housing affordability, job opportunities, and student aid, Canadians are understandably concerned about the economic implications of this budget. While the budget allocates tens of billions of dollars to these areas, marking a significant investment in addressing the needs of Millennials and Gen Z, it also raises questions about the increasing federal debt burden on future generations.
The federal debt average per person is projected to rise to around $30,000, fueling concerns about the sustainability of the government’s spending plans. Critics argue that while the budget aims to re-engage younger voters, a demographic that played a crucial role in the Liberals’ election victories in the past, it does so at the expense of burdening future generations with more debt.
While the government anticipates significant revenue from these tax changes, some economists remain skeptical. They argue that wealthy individuals may employ tax consultants to find ways to distribute their wealth globally, minimizing their tax burden.
The additional revenue generated by the tax increase is intended to bolster a housing accelerator fund, aiming to fast-track construction on rental apartments and utilize government-owned land for housing development. The goal is to build nearly four million new homes by 2031, addressing the ongoing housing crisis.
Despite the criticisms, the budget places a strong emphasis on supporting younger generations, acknowledging their struggles with housing affordability, job opportunities, and student aid. The budget allocates tens of billions of dollars to these areas, marking a significant investment in addressing the needs of Millennials and Gen Z.
With up to 18 months until the next federal election, the government faces the challenge of delivering on these promises and convincing Canadians that these measures will effectively address their concerns, while also addressing the growing federal debt and its long-term implications.
In conclusion, the federal budget represents a bold approach to address pressing issues facing Canadians, funded by targeted tax increases on the wealthiest individuals. While the budget has garnered both praise and criticism, its success will ultimately be measured by its impact on improving the lives of Canadians across generations, while managing the mounting federal debt responsibly.