Federal budget: How big a capital gains hit might have been

Federal budget: Dodging a capital gains bullet

By Evelyn Jacks, RWM, MFA, MFA-P, FDFS on March 24, 2016
Estimated reading time: 1 minute

Our tax expert crunches the numbers on a feared change that didn't come

Whew! The increased capital gains inclusion rates did not materialize in the 2016 Federal Budget; nor did additional taxation on employment stock options. But, in case it’s an idea that comes back in the future, we thought it might be instructive to take a look at what might have happened. Here is how a 66 2/3% or 75% inclusion rate would have affected taxpayers. It has been argued that, after taxes and inflation, capital gains do not provide an economic benefit over longer periods of time. The 50% inclusion rate, in part, recognizes the fact that valuations over time must be adjusted for inflation. Taxpayers are also able to offset capital gains with capital losses. However, at a time when retirees face continued market volatility and greater longevity rates while interest rates provide little or no returns after inflation. Any tax hit to their asset accumulations matters. Let’s see how changing those rates will affect taxpayers in Canada. Note the marginal tax rates in the $45,000 to $90,500 zones in particular: Marginal tax rates on investment income at various income levels (assumed Ontario resident) Marginal tax rates on investment income at various income levels (assumed Ontario resident)

	Marginal Tax Rate on Capital Gains				Interest	Dividends
Taxable Income	50%	66 2/3%	75%	100%		Large	Small Bus
Under $41,536	10.03%	13.37%	15.04%	20.05%	20.05%	-6.86%	6.13%
$41,537 to $45,282	12.08%	16.10%	18.11%	24.15%	24.15%	-1.20%	10.93%
$45,283 to $73,145	14.83%	19.77%	22.24%	29.65%	29.65%	6.39%	17.37%
$73,146 to $83,075	15.74%	20.99%	23.61%	31.48%	31.48%	8.92%	19.51%
$83,076 to $86,176	16.95%	22.59%	25.42%	33.89%	33.89%	12.24%	22.33%
$86,177 to $90,563	18.96%	25.27%	28.43%	37.91%	37.91%	17.79%	27.03%
$90,564 to $140,388	21.71%	28.94%	32.56%	43.41%	43.41%	25.38%	33.46%
$140,389 to $150,000	23.21%	30.94%	34.81%	46.41%	46.41%	29.52%	36.97%
$150,001 to $200,000	23.99%	31.98%	35.98%	47.97%	47.97%	31.67%	38.80%
$200,001 to $220,000	25.99%	34.65%	38.98%	51.97%	51.97%	37.19%	43.48%
Over $220,000	26.77%	35.69%	40.15%	53.53%	53.53%	39.34%	45.30%

Table source: Knowledge Bureau

About Evelyn Jacks, RWM, MFA, MFA-P, FDFS

Evelyn Jacks is the best-selling tax author of 55 books, an award-winning business leader and the Founder and President of Knowledge Bureau, an online financial education institute.

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