Federal budget: Dodging a capital gains bullet
Our tax expert crunches the numbers on a feared change that didn't come
Why are mortgages so expensive in Canada?
Created By
Ratehub.ca
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
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Related Articles
Canada’s inflation rate increased to 2% in October
Canada’s inflation rate rose to 2% last month, up from 1.6% in September, but a December interest-rate cut is...
Inflation is on target in Canada, so why is food (and other stuff) still so expensive?
Why Canadians are still feeling the squeeze of high food costs, and what to do about it.
MoneySense at the MoneyShow: Capital gains and ETF sessions
Here’s how to get your free ticket to attend two MoneyShow virtual expos.
Deal or no deal: What to know before shopping Black Friday and Cyber Monday sales
If you’re one of the many Canadians looking for Black Friday and Cyber Monday discounts, here’s how to know...
Where are rent prices headed in Canada?
A new Desjardins report predicts rent inflation will slow in the next few years.
Couldn’t get Eras Tour tickets? Industry practices, lack of competition could be to blame
High demand has made it challenging to get tickets for Taylor Swift and other big artists in Canada, and...
Suncor Energy boosts dividend, earnings rise to $2.02 billion in Q3
The oilsands giant will return all excess cash to shareholders after hitting debt target early.
Shopify share price soars after Q3 earnings beat
Shopify reports third-quarter net income of USD$828 million, and its executives aren’t concerned about how Trump’s election win will...
How Trump’s election win could affect interest rates in Canada
Experts say Donald Trump’s promised policies risk higher inflation and could weigh on the Canadian dollar.