Policy Forum: Inequity and Inefficiency in the Tax Treatment of Capital Gains

Canadian Tax Journal/Revue fiscale canadienne, Vol. 69, No. 4, 2021, pp. 1157-1174

18 Pages Posted: 16 Feb 2022

See all articles by Michael Smart

Michael Smart

University of Toronto - Department of Economics

Sobia Hasan Jafry

University of Toronto - Department of Economics

Date Written: February 15, 2022

Abstract

This article makes the case for increasing tax rates on capital gains income under Canada's Income Tax Act. The current tax preference for capital gains costs $35 billion annually in forgone government revenues, with much of the benefit accruing to high-income families. To address the inequity of the present system, and to reduce tax non-neutralities, the 50 percent inclusion rate for capital gains should be raised to 80 percent. This would constitute a simpler, more efficient way of taxing high-wealth individuals than recent proposals for a novel tax on wealth, and would likely generate far more revenue as well.

Keywords: Capital gains, tax avoidance, tax shelters, tax equity, surplus stripping, income distribution

Suggested Citation

Smart, Michael and Hasan Jafry, Sobia, Policy Forum: Inequity and Inefficiency in the Tax Treatment of Capital Gains (February 15, 2022). Canadian Tax Journal/Revue fiscale canadienne, Vol. 69, No. 4, 2021, pp. 1157-1174, Available at SSRN: https://ssrn.com/abstract=4025473

Michael Smart (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Institute for Policy Analysis
Toronto, Ontario M5S 3G7
Canada
416-978-5119 (Phone)
416-978-6713 (Fax)

Sobia Hasan Jafry

University of Toronto - Department of Economics

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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