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
Date Written: February 15, 2022
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
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