Capital Gains Tax in Canada - Lower Than USA

November 28, 2004
By Srinidhi Goenka

Capital gains tax in Canada has undergone a change in the past few years. The Government had introduced a Five-Year Tax Reduction Plan under which the aim was to reduce taxes in order to stimulate the economy. These tax cuts were the largest ever in Canadian history.

In the year 2000, the inclusion rate of the capital gains tax was reduced from three-quarters to one-half. As a result, the capital gains tax rate in Canada is about 2% lower than the USA today.

Should Canada Eliminate or Increase Capital Gains Tax Rates?
Recently, it is being argued whether the capital gains tax should altogether be eliminated. The aim is to improve Canada's international competitiveness as other countries have been reducing their capital gains tax rates and Canada does not want to become one of the high taxpayers, thus presenting a negative image of itself to other countries.

Also, a lower capital gains tax rate would lead to job creation and enhance business activity as the cost of capital would get reduced. This would help to further develop the economy and attract new investments.

The argument against the elimination of capital gains taxes is that it would lead to a disproportionate advantage to high-income taxpayers. This is because of the fact that it is the high income bracket that has to pay the maximum amount of capital gains tax. And a complete elimination of the tax would add a big portion of their taxes back to their incomes.
Another key deterrent is that tax revenues would get affected due to a reduction in the capital tax gains.

Overall, the positive influence of cutting capital gains taxes is more than the negatives. This is because a reduction would lead to greater investments, more jobs, and higher levels of economic prosperity. Thus, we can conclude that Canada is moving in the right direction by reducing its capital gains taxes.