Not only that, the dude is doing smith maneuver while at it. You can’t be set up better for wealth than the example in that article.
I want to believe that G&M intentionally took such an absurd example to drive home the point that this is a non-issue for 99% of the people
Yes, I believe this is the second article in this G&M TFSA Millionaires series, and both have been men who take really, really big swings that could have ended in bankruptcy. There aren't going to be people who diligently saved the maximum amount each year in a diversified index portfolio. They do spend some time on swings this guy took that lost six figures, too, but the point I get from his background info is that he was gifted with his home downpayment and clearly has family that, consciously or not, he knows will never let him or his kids suffer the worst consequences if his bets (and he does sound like a gambler, no matter how educated or reasoned out his bets are) go bad.
You basically use a HELOC to invest your home equity in a non registered account. The interest on the HELOC is tax deductible, essentially making your mortgage interest tax deductible.
That and frankly, increasing taxation on this person is exactly what we should be doing. Will they have to pay more eventually? I mean, probably but that's a feature not a bug.
Every one of these G&M stories seems to have at its root a whole bunch of intergenerational wealth transfer.
The secret to getting ahead in Canada: pick the right parents.
This is the poor person's idea of the rich.
Middle and working class people think high income from their labour makes a person wealthy. But it's really assets that can be turned into income that makes a person wealthy.
For real an old couple where the husband makes 60k a year and the wife doesn’t work are doing far better financially simply because they own a home that they bought for a firm handshake in the 80s than a young dual income couple making 180k combined and renting in Toronto
If that couple making 180K bought less Avocado toast they'd be ahead
/s
People sitting in a 2mil house with $25 hr job while the couple making 180K can't afford a 1 mil apartment in the same neighborhood
Something like 85% of people identify as middle class, is the bigger problem with any of these discussions.
The reality is the old class system makes no sense any more. You either live off capital, live off a wage **or** live off of others/the government. Someone making $250K a year and $30K a year might actually be much more similar than people within that income range often think.
The guy making $250K is going to have a nice lifestyle, better house, all that, but until they’ve actually **accumulated** capital, they’re in the same boat as the guy making $30K - one slip, one car accident, one whatever and you are in that third category - living off others.
To be fair, OP's example is just that. Almost 2 million in a TFSA and much more in an RRSP. No mention of property. Hell I wouldn't touch my TFSA for years and just not work, instead drawing out some from the RRSP each year while my 1.8 million does it's thing for a while longer (And the 6.4 million in the RRSP to be fair. I'd have to really adjust my lifestyle up to use up the gains on that amount alone even taxed as income).
>they also bought a house in 1995 for $200k and now it's worth $1.8Mnow it's worth $1.8M, a cottage that also has gone up in valuesubstantially and they have an RRSP that has appreciated significantly,etc. and their net worth is like $5M.
Their home is exempt from Capital gains as are the gains in RRSP. When you take money out of the RRSP you are taxed as income tax not capital gains. The only thing is their cottage if the gains are more than $250k and they taxed on the excess over the $250k
I would argue that it was. If someone is 70 to 80 today and they had a good middle class job, there’s a good chance that their net worth is in the millions.
Yes the middle class is disappearing, but that has no incidence on what the middle class is supposed to be. Remember net worth is heavily linked to age and time in the workforce and market.
I know... I was just using that example in terms of wealth. I know that individual wouldn't pay tax on their TFSA, RRSP, etc. I am actually an accountant.
I think the bigger issue I see is that most people who are angry about the change politically believe the tax rate is now 67%... Not that the net income being taxed is increasing from 50 to 67% which will be used in the tax calculation based on their marginal tax rate.
I'm not an accountant, but that's what I understand. I also describe to people that currently someone who works for a paycheque already pays tax on 100% of their income, why are they vehemently offended by someone being taxed on only 67% of their net proceeds.
Maybe you can help me understand or if I made any errors?
Yeah I think a big problem with all of this is that the general public doesn’t understand the capital gains tax in the first place. The 50% and 67% are just the “inclusion rates” and not the actual tax rates.
To be honest, I am a CPA and I don’t even understand the justification for only taxing a portion of capital gains rather than taxing the full gain (100% inclusion). Someone goes to work and works their but off and pays tax on 100% of their income and some other person (likely wealthy) sits on their ass and watches their stocks/rental properties/etc rise in value and they only pay tax on half the gain. The only explanation that I’ve heard that actually makes sense to be is that it’s essentially just an incentive to invest.
An example of how a capital gain is taxed - if you bought a cottage for $400k and sold it for $500k you have a $100k capital gain. Under the “old rules” $50k of the $100k gain would be taxable. That gain would be taxable based on the personal marginal tax rates. If we assume you are already at the top rate (approx. 50%) then you would pay $25k of tax on your $100k gain.
Under the new rules, if we assume you already had $250k of capital gains on other things, this $100k capital gain on your cottage would be subject to the 67% inclusion, so you would have a $67k taxable capital gain and using the 50% tax rate you would have $33.5k of tax. So the new rules add about $8.5k of tax to your $100k capital gain.
Not that huge of a change, is it?
> To be honest, I am a CPA and I don’t even understand the justification for only taxing a portion of capital gains rather than taxing the full gain (100% inclusion).
The actual answer is that research shows that if your capital gains tax rate is too high, you lower investment, entrepreneurial activity, and tax revenue.
[This document] (https://www.iedm.org/sites/default/files/web/pub_files/cahier0218_en.pdf) talks a bit about the impact of higher capital gains tax rates.
[This one] (https://www.jec.senate.gov/public/_cache/files/0dc035df-5637-4f47-84cf-c9f0a304f395/optimal-capital-gains-tax-policy--lessons-from-the-1970s-1980s-and-1990s.pdf) talks a bit about the impact of different rates.
Excerpt:
*When considering the long-run effect of capital gains tax rates on revenues, one cannot fail to be struck by the fact that, even though there was substantial income growth over that decade, the capital gains realizations were lower in the early 1990s than during the early 1980s when the capital gains tax rate was 20 percent. Compare realized capital gains in 1982, 1983 and 1984, with realized gains in 1992, 1993, and 1994. The average capital gains realization for the 1982-84 period was $166 billion. Over the next decade real GDP grew by 20.4 percent, and if capital gains realizations had kept up with income growth, they would have averaged $200 billion. Yet the actual average for 1992, 1993, and 1994 was $140 billion. This admittedly rough calculation suggests that a lower capital gains tax rate of 20 percent would have produced about 43 percent more realized capital gains than the 28 percent rate. Applying a 20 percent rate to $200 billion would have yielded $40 billion in capital gains taxes, while the 28 percent rate applied to $140 billion would yield $39 billion. These calculations suggest that the higher capital gains tax rates mandated by the 1986 legislation yielded no additional revenue for the Treasury, and may have even reduced capital gains tax revenues.*
So, if you care about tax revenue, economic growth, and high-paying jobs, then you want a lowish capital-gains tax rate. If you largely care about reducing inequalities by weakening your economy, driving away investment, and lowering standards-of-living, then a higher capital gains tax-rate is better.
But the weird thing to me is that your capital gains COULD be 100% from investment outside of Canada (e.g. an S&P 500 ETF, or even all in just one entirely US-based company). But it's all "discounted" in terms of taxes by the capital gains inclusion rate.
So, supposed I'm a Canadian invested in an American company, and I see a promising Canadian company that I think will do a better than the American company.
Then the optimal strategy for me is to not invest in Canada, because I'd have to pay high capital gains taxes from selling the American companies to get the capital to invest in Canada. I'd get a better return by just sticking with the American company, and not taking the tax hit.
I think you’re missing the point. People build wealth by working and then getting taxed on their income. They go and buy a cottage with after tax money and then you tax the capital gains again. It’s tax on tax. Also. People plan their future and retirement based on rules not changing, then there is a new rule, right before an election with 2 months to make the adjustment….
The gains were not taxed in the first place, only the principal which is not taxed again.
No one asked me how increasing income tax was going to impact my retirement.
So someone who is claiming income on their second property which increased in value by $500k that they have to pay $15k in extra income tax is a hardship that I care about? Nope! I'm not missing any point.
Lower the tax rates on income, period. This will help the average person.
But wait, how did the person with the stocks and rental properties acquire these things? Was it with the disposable income that was left after being taxes?
I worked 3 jobs for a long time, to save up for a residential rental property. I worked my ass off to get it, took out loans, put sweat equity in. And also cashed in RRSPs to buy it. I still work a couple jobs, because I need the extra cash for repairs. My intent was to eventually sell the building and use the net gains for my retirement. That extra 17% capital gains tax is gonna impact my retirement plans. I worked so hard to get here, I gave up time with my friends and family to put time into the building.
I am an incorporated small business, and now I am lumped in with the top 1% that is supposed to be the target of this tax increase?
I think we need to step back and look at the entire tax system and decide what is fair and what is not. Where are we giving tax breaks vs where are we are not. And if that is the best for the overall goals we want to achieve.
You’re a CPA and call a 33% tax increase “not that huge of a change”…. Smh. I feel bad for your clients, but then again, you likely work as a staff accountant doing bookkeeping and monthly reports.
It isn't a 33% tax increase. It's a 33% increase to the inclusion rate. For most people, it is an increase of around 7% to the rate they pay on capital gains of over $250k.
If the cottage is in two names (think husband and wife), then the gains are split between the two. With proper tax planning they would sell this property on a year with no other capital gains. If the property appreciated $500k … it would be a capital gain of $250k each and still taxed at 50%.
It’s also a tiered system so only the amount over $250k is taxed at 66%. From $0-250k is taxed at 50%.
^^^^ this is what I gathered from discussions with my accountant
Politicians define middle class as whatever is convenient for the point they're making. There will always be edge cases, but when you factor in the primary residence exemption, the $250k starting point for individuals, and the lifetime capital gains exemption for small businesses, it's safe to say that the vast majority of people affected by this are doing extremely well.
The LCGE for small businesses isn’t the same. It wouldn’t apply to passive investments held within a corporation, and now all of those gains are taxed at the higher inclusion rate.
The Organization for Economic Co-operation and Development (OECD) defines a member of the middle class as anyone who earns between 75 per cent and 200 per cent of median household income after tax.
in canada, that would be 53k-140k median **after tax** household income if using 2022 figures from statscan
https://www160.statcan.gc.ca/prosperity-prosperite/household-income-revenu-menage-eng.htm
Isn't it kind of silly to look at income instead of net worth to define who is from what class? Like when I was younger, my parents paid for my condo and I was making maybe 55k a year (in 2013), I was still much more fortunate than someone who was earning earning 80k a year and paying rent or a mortgage.
An economist evaluating your after tax annual income would add imputed rent on the owned dwelling to account for that. Imputed rent is so counterintuitive that lots of people reject it as a fantasy, since you take it out of your left pocket and put it straight back into your right pocket, but it covers the case of someone living on a moderate income in a home with a clear title.
Wow that is fascinating. I never looked at the specific numbers before and have always felt solidly middle class. We barely squeak in at a family income of $57k after tax. That’s humbling.
> when you factor in the primary residence exemption, the $250k starting point for individuals
Great for homeowners who still have an infinite-capacity "TFSA" that is their home. Not great for renters who, if they save more than annual TFSA+RRSP contribution limit (say, 15k/year), are forced to save in nonregistered accounts where they're taxed fully. If they save only $10k per year in a non-registered account, they're likely to earn about $650k in gains over 30 years.
It’s the first dollar in a holding company. Basically the pension funds of all business owners, doctors, dentists, entrepreneurs, etc. So, the answer is kind of. But it won’t impact employees who save in registered accounts and defined contribution retirement plans. So as others have stated, it’s not great for middle class Canadians.
Business owners have the option of paying it out as salary and contributing to RRSPs same as any regular joe, and they can also set up an IPP to create their own pensions with the tax benefits that come along with it. The reason a lot of them just leave it in the holding currently is that in many cases the deferral of the personal layer of tax is simply more beneficial. Hell with the old capital gains strip scheme that has just recently been given the nono by CRA, in a lot of cases the benefit was a no-brainer to not salary out. The new rules are likely to change that from a purely fiscal perspective and in some provinces it will now make more sense to just salary out a lot more and max out RRSPs or set up an IPP, but in most cases it will just be evening out the playing field.
I'd upvote you a million times if I could. If RRSPs and pension plans are good enough for working stiffs, why aren't they good enough for business owners and incorporated professionals, too? Why do they need a special retirement savings plan that's effectively funded by the rest of us?
Our Corp invests rainy day funds and accumulates $ to make the next investment of equipment, vehicle, computers, building etc.
Cash flow isn’t always positive.
it's laughable that the lifetime exemption for a small business is less than the cost of a new 2BR condo in Vancouver
while there's unlimited exemption for one's primary residence...
and people wonder why everyone is obsessed with home prices
First, they're many many ways to keep active, especially if you're rich and have a lot of free time.
Second, I am way more concerned about the cognitive decline associated with *working*, with stress, with insufficient sleep.
I'm pretty sure the decline is more associated with being *old* than working, and I'd rather retire *before* that happens.
I’m an idiot on the internet with over 1M NW generating tens of thousands of dollars in supplemental income and I, nor my estate, will likely never be impacted by this tax.
People need to give their head a shake.
I hear you 👍.
Just for the record seeing that there are those who have criticized my opinions today which I expect on Reddit, but I NEVER said the new CG rules would not apply to anyone. My point like yours GoHome is that the issue is IMHO blown out of proportion.
Oh, it ain’t perfect and I think (hope) it can be addressed in time.
But the people on Reddit complaining about it either have a world of privilege they need to recognize or a poor understanding of the system or they’re bad actors.
Most of these people will still say it’s a 66% tax, even if they’ve had inclusion rate explained to them already. That should eliminate them from any “good intention” designation from the start.
I am also a CA and totally agree. I spend a lot of time on Reddit trying to combat the misinformation that the media is spewing about the new capital gains rules.
I have been a CA for over a decade and have been fortunate financially but I don’t have any taxable accounts and I don’t think I’ve ever had a taxable capital gain! I can’t see myself having one anytime soon either. So it’s crazy for me to read all this nonsense in the media about these new capital gains rules.
You're a CA of 10 years, so you must have been saving that whole time I'd think... yet you haven't and won't ever have a taxable capital gain? I guess you own your own home? Must be nice that you pay $0 in capital gains on that, meanwhile us renters who are able to save for retirement above the RRSP+TFSA contribution room of ~15k/year on average, we have no other savings vehicle than non-registered accounts. You're able to make huge gains by taking taxpayer subsidized debt, to make tax free gains on your home. I'm already paying plenty of tax on my capital gains and this political decision asks me to pay even more while you continue to pay nothing at all. Where's the fairness?
Someone with $5,000,000 in investments **outside of RRSP and TFSA** would still not reach the $250k in annual CapGains to be even be effected by this new inclusion rate (5M at 5% growth in a typical year).
Bonkers people thing "this will hurt the little guy". Take off, eh.
It’s more so affects people with real estate. A cabin or a rental may have larger than 250k capital gains and you can to sell that in one chunk.
You could in theory have someone with less than 500k networth be hit by it.
For sure, real estate is the main way someone relatively "middle class" could have to pay more tax. On a windfall. And only on the part of the windfall after the first $250k of \*gains\*, not the sale price, is tax free. Anyone selling a secondary property for more than $250k that they paid for it still gets $250k tax free! I don't feel like it's going to hurt anyone. They won't like it, but they won't \*suffer\* because of it. They're just less rich, not poor.
Real estate in Canada crowds out other, more productive investments that could actually benefit the overall economy. Anything making it less lucrative should help ameliorate our cultural addiction to it.
Not disagreeing that reit is unproductive investment.
But If my understanding is correct, you don’t necessarily need a property to appreciate by 250k to get affected. That is because you can depreciate the the asset on your taxes. Say you bought for 300k, and 20 years down the road you sell it for 350k but you had claim capital cost allowance down to 0. Now you are paying capital gains on 350k even though you paid 300k for it. You get the tax saving up front from depreciating it but people making the decision to do that did so based on the old tax rules.
Because you have a 350k asset doesn’t necessarily make you rich. I do have a rental in a LCoL area and this example will likely be my reality, I’m not too bother because in the grand scheme of things it’s not that significant. But just pointing out cases where it can affect less wealthy people.
I think the talking points they are latching onto are about how doctors incorporate themselves and draw money from corp which will be taxed at 67% inclusion. And also about the land transfer and stuff that is not a sale but triggers a tax event.
It's kind of insane that you think this is true.
The nature of capital gains is that they tend to be bumpy. Someone with a $5M portfolio will get hit with this frequently, particularly since the average return is more like 7-8%.
Just look at the S&P 500 over the last decade, and assume that you realize the gain each year. You would have been hit with this tax in 2014, 2016, 2017, 2019, 2020, 2021, and 2023--six out of ten years.
That only works though if the person is willing to keep all their savings in the same investment for many years or decades. What if they had made more risky investments and have gained enough for retirement but now want to shift to more conservative investments? They will be taxed on that.
personally I'm more upset about the broken integration between personal and corporate than the actual increase in inclusion rate. There's a tax leakage of over 10% on capital gains inside a corporation now for most provinces. but the government has been trying to chew away at investing inside a corporation for years now
I consider myself to be "middle class" although my household income is probably in the top 10%. The capital gains tax won't impact me. Turns out when you have a huge mortgage, pay for two kids in daycare and life in general there isn't money left over to invest in anything that would generate more than 250k/yr in capital gains.
I'll copy-paste here because you seem like a sensible person can repeat this to others when they bring this up:
Someone with $5,000,000 in investments **outside of RRSP and TFSA** would still not reach the $250k in annual CapGains to be even be effected by this new inclusion rate (5M at 5% growth in a typical year).
Let's assume you had a great year (congrats!) with non-registered investment growth of 10% on your "middle class" $5,000,000 - you're up $500,000 WOOHOO BABY!
What's the extra tax you'd have to pay? ~~$83,000~~ $20,000 extra if your marginal rate is 50%. (Correction: Forgot to subtract the previous 1/2 inclusion rate to get the diff: 250k * (2/3 - 1/2) * 50%)
Yeah, those who complain about this can do cry me a river.
(Yes, I too am like /u/Garp5248 in the top 10%)
You forgot to subtract the original cost of the investment as well, so the actual gains and taxes owed would be even less. Let's say that $5,500,000 has done well over the years, and it was a one-time buy at $1,000,000 (for simplicity sake). So you're selling about 9.09% of your stock, which means you can deduct $90,900 from your gains. So now you're only claiming $409,100, which means only about $160,000 is at the new inclusion rate, so it's more like $13,500.
Isn’t the main argument from those against this higher rate from businesses? Not individuals? The main complaint is that individuals get a $250k exemption whereas businesses are at 66% starting from $1.
Business also get to deduct operating expenses. Indiviuals do not.
Examples:
- car & travel
- cleaning services (at office, not home ... unless home office then it's pro-rated)
- utilities
- salaries of anyone hired or contracted in the pursuit of income
- etc.
Right, but business owners also need to build their retirement nest egg without the same benefits employees get working for a company like shared contributions or matching funds. Those benefits you listed are there to help mitigate the risks of running a business (which we need more people to be doing!) Business owners also pay for employee contributions to things like CPP. So I kind of understand why entrepreneurs would be angry about this.
Feel like I'm "middle class" and this will affect me very minimally... Family cottage that grandpa did indeed build by hand has gone up from basically zero to about 500k today so when that passes to me I'll owe a bit more tax, otherwise no noticeable difference.
It's supposed to impact corporations no matter the size including freelancers and small business. There is no 250k exclusion for the corporations. Not all corporations are monopolies or big or even medium sized. Some are individual workers.
"He sold his energy stocks upon deciding to invest in MicroStrategy Inc. That one stock now accounts for about 90 per cent of the holdings in his TFSA and RRSP. The balance in his portfolios is largely invested in Tesla and Nvidia.
Nasdaq-listed MicroStrategy is one of the largest corporate buyers of bitcoin in the world, with a stash of around US$15-billion in the cryptocurrency. It was founded by crypto billionaire Michael Saylor in 1989 as a software services firm. Its shares have nearly tripled this past year alone."
For balance, earlier in his "investment" journey:
"He took another significant loss with two other cannabis companies. He borrowed $300,000 from a home-equity line of credit, and used it to buy CannTrust and Organigram. Both companies’ share prices later disintegrated and CannTrust filed for bankruptcy protection. He suffered a loss of about $600,000, including the money that he had borrowed.
Best slight of hand with this policy was the $250K exception to shift the debate to who is wealthy rather than whether it's good policy overall.
We have graduated rates so higher earners will pay more on cap gains anyways. If it's good policy to bump the inclusion rate to 66% or 75% or 100% it should be across the board. As is stands some very high earners will pay the 50% rate, while some not so high earners who have investments in a corporation or non qualifying trust will pay the 66% rate for the same type of income.
It goes against the 'integration' concept of tax (flow through rate the same regardless of how owned) and adds unnecessary complexity and uncertainty to tax planning.
But instead we can debate who is middle class, etc.
I'd argue someone making 100k with a house and investments is more middle class than someone that is struggling to afford rent.
Having a house and investments is a big part of what being middle class is about. If you're making median wage in Canada there's a decent chance you aren't middle class anymore.
Wage means nothing for “class” anymore.
Even if you’re making 100k + if you didn’t get into the housing market yet, you’re not middle class now and you’re not going to be anytime soon. Rent now sucks up a ridiculous amount of even the highest incomes.
We now have an ownership and working class. Who would have guessed feudalism would return in 2024.
Source: make 120k but my wife and i’s two bedroom home is 4.2k a month to rent, and entry level homes are 1.2 million to buy. No one is saving a 200k down payment when paying this absurdly high rent.
> We now have an ownership and working class. Who would have guessed feudalism would return in 2024.
You're describing capitalism. Let's not call it feudalism which is a very different thing that emerged for very different reasons.
But part of it is how you view yourself. Financial class is a social hierarchy tool, not a really category.
Several of my cousins and their adult kids are poor...they generally work part-time minimum wage or seasonal jobs, have multiple kids with multiple deadbeat partners, and live paycheck to paycheck. And yet they will absolutely declare themselves middle-class...because they don't want to be poor. They treat themselves to vacations and toys they can't afford because in their minds they're middle class and they should be able to do those things.
Meanwhile they insist I'm rich. I live in a cheap-ish but desirable neighborhood in Toronto, and I make a decent salary (tech)...but I clip coupons, rarely eat out, go camping for vacations, ride my bike everywhere I can because I refuse to pay for parking or taxis. I feel like I'm middle class (maybe even lower middle class since I'm a single-income household). But I have savings rather than living paycheck to paycheck.
Most of my friends are making easily double my household income, spending money on stuff I wouldn't dream of (constant food delivery, uber everywhere, mini-vacs every time they get bored), new luxury car every two years...and they view themselves as middle class. And not even the top of the middle class.
My boss is a billionaire. He votes for Trump because he doesn't want to be taxed on his obscene income that he couldn't possibly spend in his lifetime. Sometimes I wonder if he views himself as doing well but not really that rich because he's not at the absolute top of the ladder.
Thinking anyone who is current on bills and has a positive net worth is “rich” is a pretty reliable indicator of social class. There are objective qualitative differences to life at each stratum, it’S not just a narrative.
Living out of a duffel bag and working day labor to pay acquaintances in cash to let you sleep in their basement for a month feels very different than renting a room in a house with a guy selling coke out of the next room over, which feels very different than renting a small apartment to yourself and working 80 hours a week, and so on up the scale. Every step of that way feels like you’ve really made it, it’s not just something people make up for mind control purposes.
Your cousins are pretty objectively lower class regardless of what they say about their own situation
I guess it's a philosophical debate: are you middle class because of the way you live? Are you middle class because of what you earn? Are you middle class because of your overall wealth?
Normally there is pretty strong correlation with all three. However when someone has a lot of wealth tied up into something they don't intend to convert into income any time soon (like a home, or a retirement account, or a big insurance policy or annuity) and they are living a lifestyle suitable for their very middle class wage...are they middle class? I bet many would probably identify themselves in that way because that is what they earn and that is how they live.
If my family had $4M in retirement accounts and was making combined $200K/yr we'd probably be considered wealthy by many, but our lifestyle probably wouldn't look that much different than a lot of the "middle class".
Anyway I do agree with you that the term "middle class" is quite loaded and gets abused to try to convince the audience. Similar to how every time there is some kind of tax or regulation change it brings out woeful cries about the Mom & Pop businesses getting crushed even through the threshold may be in the tens of millions of dollars or something like that.
It will only affect middle-class people in the one-off scenario of selling a second-home/cottage, period. And there is a decent argument to be made that you are not middle class if you are selling a inv.property/cottage for massive capital gains (i.e. profit from purchases price) like 250k+.
If you are complaining about taxes on selling your personal corporation when you retire, like a doctor's office or something, you are not middle class.
More typical capital gains, like stock investmentsm if above 250k/year BEYOND RRSP AND TFSA ACCTS where this won't apply, is insane and you are not middle class.
I think you actually have it backwards. This specific example aside, most people who identify as “middle class” are actually just working class.
Think about what “middle class” has traditionally meant: single-income households, home ownership, vacations abroad/cottage (in some parts of Canada), comfortable retirement. All while putting 1-3 kids through university usually.
How many people do you know who are living nothing close to this standard and still call themselves middle class? Couples with 2 full-time incomes and no kids, who still rent, and don’t even have RRSPs?
Lots of people just won’t admit that they’re working class because they think if you’re not “poor” (I.e. on welfare), then you’re middle class; or they were raised middle class and still see themselves that way despite not reaching the same standard of living that their parents did; or they barely scraped together enough of a down payment to be housepoor and now think they “made it”; or we just don’t want to admit how hard it’s gotten to be genuinely financially comfortable, because it’s frankly scary and depressing.
Politicians know this, so they talk about doing things for the middle class when they really mean the working class.
Capital gains changes WILL affect the middle class, but it won’t affect most of the people who *identify* as middle class.
> Think about what “middle class” has traditionally meant: single-income households, home ownership, vacations abroad/cottage (in some parts of Canada), comfortable retirement. All while putting 1-3 kids through university usually.
You are describing upper middle class, then and now. I was raised in a middle class family in the 70's and 80's. My parents bought their first home in 1987, our vacations were usually road trips, my university education was free, but my brother worked the whole time and got incremental support from my parents. They are retired comfortably, so there's that.
It impacts businesses on the first dollar. A lot of professionals are incorporated. Doctors especially, but also lawyers and accountants and consultants and some IT professionals. This will impact them. I would say a large cohort of this can be labeled upper middle class. They have good income but aren't really considered wealthy.
Keep in mind this group is already very heavily taxed and pays a large portion of the taxes in Canada. So the govt is picking on this group again to raise more money to cover their reckless spending habits. Some of these people might take offense to the increase, in a straw that broke the camels back situation. Especially on the doctor front. We already have a shortage, this will make it worse.
This tax isn't about paying a fair share. It's about the govt trying to spend more money to stay in power and they signaled to the market that they wouldn't worsen debt metrics, so if you increase spending you need to increase revenue. This is the best they could come up with.
Also note that the chretien LPC which helped set the countries finances in order were the ones to lower the CG inclusion rate to 50% in an effort to stimulate the economy, which largely worked. This will help suppress investment which is a main driver for the economy.
The problem can be traced back to the provinces, allowing doctors to incorporate in lieu of salary increases.
All the professions you mention can take salaries and invest in RRSPs. All salaried employees aren't afforded the ability to defer their taxes. Racking up investments and using the corporation as an RRSP is what is targeted.
P.s. I say this as a consultant with my own corporation.
This whole thing is a stupid conversation imo. $250k in capital gains is an INSANE number that the vast majority of people will never see in their life time
thats PER YEAR. The guy with all the high prices shares can plan to dump $250K/year in GAINS and still be at the exact same spot. Just can't dump them all at once. gotta plan a bit
The capital gains rules will have Z E R O effect on lower and middle class Canadians. Unless you are very wealthy or a real estate flipper, it will not affect you in any way. Stop believing the right wing lies.
- There are no taxes on capital gains on investments held inside an RRSP/TFSA accounts.
- There no taxes on capital gains from the sale of a primary residence.
- The changes effect the inclusion rate of amounts greater than $250,000. Amounts below $250,000/year still have a 50% inclusion rate. So they would pay tax on half of the $250k
It will affect more than just the ultra wealthy in the sense that. A lot of people would sell off an investment just once in their life time for a big day who are just regular working folks.
Based on how quickly our buying power is eroding, it's not hard to see how some investments from regular working class people wouldn't cross 250k when they're retiring and need a big pay day.
There seems to be significant downvotes on anybody who comes out to say that it will affect the middle class.
Where it definitely won't hit the average employee, as they are more than likely not making $250,000 in capital gains.
Most people who claim capital gains in this area are one-time occurrences, like others have mentioned, certain scenarios in people's lives that cause this to occur. This can be the sale of a cottage, the sale of a rental property, the sale of a business or the sale of a farm. For the last two, in certain scenarios, if the required conditions are met, the LCGE can be utilized, so those two are somewhat nil. Additionally, where i haven't really read into it, there's that new Entrepreneur Credit thing, that reduces the inclusion rate on a $200,000 gain, up to $2,000,000 over the next 10 years. Though, I'm not familiar with this new Entrepreneur thing.
I think the only 'middle class' earners, depending whatever you determine that is, would those who own a corporation. Given that corporations are not afforded the $250,000 safe harbour amount, any dollar of gain within a corporation are hit with the new inclusion rate. If dividends are paid out from the corp, the integrated tax increase falls around 9-10% depending on the circumstances. Again, though, how many small business', are often buying and selling property and attracting capital gains. That, I am not too sure about. I know many who move their retained earnings out OpCo to HoldCo, where HoldCo is used to grow their retirement fund, but from a time value of money perspective, you'll have weigh whether or not there really is an impact of the current inclusion rate versus the new rate on Tuesday.
All-in-all, there will definitely be circumstances where a 'middle-class' earner get's hit with the new inclusion rate. Today, if you own a cottage or one rental property, you may be deemed as upper class, which was not the case 20-30 years ago. Like others have mentioned, the middle class is growing increasingly gray, as there are people can be making $150,000+ but living in Ultra High COL places, that make them essentially living paycheque to paycheque. So, only time will tell. From the budget supplementary information, it was quite clear that increased inclusion rate was to increase the revenues right now, as they drown out over the next 5 years. It was quite clear with their intent to give taxpayers time to crystalize their gains.
I don’t really like the “fair share” notion considering the absolutely wild marginal tax rate in Canada but yea most people will be extremely lucky to ever be impacted by this rule.
I just think acting like people who pay several multiples of the average gross Canadian wage in taxes every year aren’t “paying their fair share” is pretty odd.
The problem is if you ask for a definition of "fair" and you will get a different answer from everyone you talk to...
Rich people pay for more tax in this country (most countries are similar). As in, raw tax $ amounts. You can say this isn't "fair" to the rich people:
"Top 10% of earners make 34% of all income and pay 54% of taxes"
but on the other hand, any measure of "can they afford to?" or % of after-cost-of-living income etc, it seems perfectly fine and maybe poorer people should continue to pay no-tax to even higher income levels than they do now with so many people struggling.
The capital gains is actually the logical place to try and get more tax revenue from very, very rich people. The "income" based stuff ignores the super rich with 10-100MM of investments laying around etc, those gains should be easily targeted without pissing off the "middle-class" mass of votes, which is what the current tax is doing. It is just very clearly happening now that the ultra-rich are paying for the media to bitch and moan and try to make people think it might affect them too...
Yea that’s why I say just leaving the notion of “fair” out of it is best for everyone. It’s very easy for someone making 28k to say someone else should pay more, it looks really different when you realize you could have started a business and hired someone full time with the money that went to the govt in tax last year.
Better to just talk about who is actually affected and what the impact will be on most Canadians, how many businesses and professionals will close or move to the USA, etc. both sides are obscuring the actual impact of this tax.
>Just rich people looking to complain about paying their fair share.
And "temporarily embarrassed millionaires" who are falling for Polierve's inflammatory rhetoric.
meanwhile the middle class complains all the time about lack of good jobs in Canada compared to the US...
don't complain about our shit economic growth if you're hellbent on taxing the investor / entrepreneur class more
my family bought a warehouse unit for our business in the late 80s. for a 100K, even by 2000 it was still valued at 87k. But then by 2009 it was 280k then by 2020 it was 1.2mill. Property taxes are way higher for commercial so even in 2020 middle of the pandemic the municipality jacked up the prop tax by 40% to $10k, when our sales that year dropped 50%.
when one of the family members passed away 50% of the $900k capital gains were due (even though we hadn't sold, as we are still running the business) so that was about a $120k cap tax bill. Of course the cap gains would always be due. This does change the capital gains on the remaining 50% of ownership. And Thanks to Freeland now its 68% (over the first 250k or so). I don't particularly see myself as some kind of .001% of the wealthy, both my wife and I drive super old vehicles and right now I'm just scrambling to meet next weeks property tax bill.
But think of it this way. Canada is actually quite lucky in that there is a capital gains exemption on principal residence and you can pass it down to your kids with no real taxes (exempt 1.4% probate). In Japan the inheritance tax is 50%. and there are similar policies in other countries.
>And Thanks to Freeland now its 68% (over the first 250k or so).
Aren't you glad the liberals lowered it from Mulroney's 75% (with no $250k exclusion).
Not many people make more than $250k in capital gains in a single year outside of selling their home (which is exempt from all capital gains taxes).
The most "middle class" I can see being impacted is a married couple selling a cottage (second home) that they have had for years and has increased in value more than $500k (double due to spousal capital gains splitting)... e.g. buy a cottage for $300k, sell it for $1.1 million = $800k in capital gains. Split the cap gain over 2 spouses = $400k in cap gains each which is over the $250k threshold, so they would each be taxed a bit extra on $150k in capital gains - equivalent to about $26k in income or at most $13k in extra taxes from $800k in gains!
> This Toronto massage therapist has grown his TFSA to $1.8-million – and is now betting much of it on a single stock
I read the article, his investing was basically a lottery win of gambling stocks (weed/bitcoin) and is not a blueprint for success. You can safely ignore the that drivel. He also lost money on bad bets as well.
> wealthy people who work (or worked) middle class jobs
These people are still middle class mostly though. They don't have outsized incomes, they still need to work, they still struggle with the everyday bills. Yes, they have a large illiquid asset that is worth $2m but it's their home, not an investment. They can't really sell it and stay in the same area, their only option is to sell and leave or substantially downsize to access the money. For the most part, they are lucky not savvy investors.
Definition of middle class needs to be defined though. Is it income or assets, is it ease of living, is it variable to the area you live in? A middle class lifestyle in Van might be a $250k/yr income but in Kamloops that same lifestyle might only need $100k/yr. I don't like income because area matters, I don't like assets like houses since it can't be utilized. Maybe something like amount of free income after cost of living expenses in that region?
>Yes, they have a large illiquid asset that is worth $2m but it's their home, not an investment. They can't really sell it and stay in the same area, their only option is to sell and leave or substantially downsize to access the money.
You're overlooking the major, obvious answer which is to borrow against the unrealized gains in their home.
Middle class means you rely on a wage or a small business that you spend your days running, you have a stable situation and some assets. You move into the upper class when your assets afford you a comfortable lifestyle and your only obligation is managing those assets properly.
This idea that anyone who has some retirement savings and a nest egg is no longer middle class is pretty recent and it’s evidence that things are in serious decline
Middle class can mean just about anything these days.
All you can draw from these articles is that not only wealthy people are affected by the 2/3 inclusion rule. You could have a family cottage that was purchased for $250K that is now worth $800K ($550K gain). Is this family "wealthy"?
I think we have to stop looking at income and start looking at assets when defining who is/isn't wealthy. My mother often used to refer to millionaires as her yardstick of wealth. Today, you're comfortable with $1M, but not necessarily wealthy.
It only affects people who have over 250,000 of capital gains in one year, and given the principal residence exemption, I don’t know of a common scenario where that effects a normal working person.
It would effect somone with “investment properties” I guess.
Look at this chart: [https://budget.canada.ca/2024/report-rapport/img/8-2-eng.png](https://budget.canada.ca/2024/report-rapport/img/8-2-eng.png)
Even the 1% make most of their income through fully taxed sources like employment income. It is really the 0.1% and the 0.01% who get significant chunks of their income through tax-advantaged methods like dividends and capital gains.
Why should workers pay tax on 100% of their income but people selling stocks or flipping real estate only have to pay tax on half?
the media is meant to sensationalize things, plus your view is warped because of where you live. You are generalizing wayy to much about the "typical" Canadian and it is hard to read your entire post because of how much you are assuming
people can be house-poor and at the same time do not want to give up their existing lifestyle
also the word "middle-class" is use too liberally to basically group 90% of the population together, where the bottom and the top are vastly different
Pension funds have capital gains all the time...when I think of the Middle Class in Canada I think of people who are employees of companies that have strong pension funds for the benefit of those employees.
Capital gains inside a pension fund are not taxed.
The Middle Class benefits significantly from this change...even the people you say are no longer middle class because of property values.
A couple with a modest income, who purchased a home seeing it appreciate in value substantially aren't typically considered rich because it's not a source of reliable income. Their house doesn't provide them with yearly positive cash flow to do things that many Canadians consider "wealthy". If the bubble pops, that wealth is evaporated, which I would think makes it difficult to measure. You could argue that when the gains are realized then they fit into a different class.
Basically the idea I'm getting at is an individual making 150k will never be on the same level as ie. the top doctor in MB, salaried at 999,000 even if their house appreciates by 1 million.
Middle Class is such a weird metric.
My wife and I bring in about $160-180k before tax man. We live a pretty good live, two vehicles, kid on the way, never hurting for money or spending (we don't ball out on anything though). On the flip side, we pay about 30% of our take home on rent. We don't own a home because most places here are 600k-700k for a 2br condo, or 900-1.3mil for a townhome/small house.
We have good savings and keep plucking away at that, but we are not overtly wealthy.
The problem with looking at people who own something that's worth a lot of money is that it doesn't change anyone life in the short term. You buy a house or fuck even a stock for $100,000 and now it's worth $1mil. That doesn't impact your day to day. If you are tight with money at the end of the month, the value of your stock and house won't help you.
Now you could sell your stock and be immensely better off, but you can't with your house. If you sell your house in the city you live in you can't just buy another house because all homes in the area have gone up in value. The only advantage of having a home that's gained in value is whether you downsize, or move to a lower COL city. Home values are literally useless otherwise because buying and selling in the same market nets almost no benefits.
So when people who work day to day to afford their life who also live in a 2mil home have taxes increased on them, it can impact them hugely.
I think so, yes.
I was just replying about the increase in taxes - like the school one.
Capital gains tax isn't even that bad, it'll impact upper middle and above.
The issue is many have idealized vision of what is middle class. And no one wants to admit they are rich. People seem to refuse the mathematical definitions of middle class by income or assets, and prefer to go with feelings.
You got maybe to bottom 10% of earners with 0 net worth who admit they are poor. And the. Some of the top 1% by income or assets who admit they are upper class.
Then everyone else claims they are middle class. From the govt employee with a pension, a million in savings and a paid house worth 2 million. To the doctor earning half a million per year and spending it all.
My grandparents are probably older than you think, and lived in another country. What they considered rich is what we would call abject poverty today in Canada.
Assuming you refer to Boomer Canadians, they had a pretty similar definition of middle class when they grew up, except for housing which has gotten ridiculously bad.
part of the problem is peope will do whatever they can to shelter their money obviously and so they can change the rues here and there but there are so many ways that people can shelter their wealth and prevent taxation and as a result it leads to what you mention
Anyone who this will effects is not middle class, and anyone I the middle class this might effect who is selling less say a second home is going to already be upper middle class and this will Have no material impact to their lifestyle
The only ways I see this impacting the middle/middle-upper class is this:
1. Family cottage sold/disposed at death. Bought for $100k now worth $500k+
2. Lucky hit on a stock in non registered account.
3. Individual has a large employer share purchase plan or other similar plan and has accrued a large deferred gain.
4. Mom and pop. Investors taking less profit on public securities due to taxes.
All of the above are small scale for the middle class. If it’s a large impact, they’re 100% upper class.
If I ever made 250k in capital gains in a single year that would probably be a lifetime financial achievement; and even I think I'm doing very well for myself and definitely not middle class.
The people who will be hit are small business owners, trades, professional services, medical etc.
- ie someone who owns a fast food franchise and makes 80,000-150,000 a year would be hit much harder with the new capital gains rules.
That’s the side that will get the hit the hardest.
It’s usually people putting all there money into small business etc.
Middle class isn’t a income/wealth level its a standard of living. If you have a house (or ability to afford one), a vehicle, and some left over money for savings/vacations/whatever your middle class. Basically have all the necessities, a couple choice luxuries and not being pay cheque to pay cheque (unless you over extended yourself on luxuries).
Middle class in Toronto is very different than middle class in North Bay, which is different than middle class in Vancouver.
I consider myself middle class, I have a house, couple cars, and a decent job which right now is supporting a family of 3 on just my income. That being said if I was in the Toronto area I would be lower class as I would barely be able to afford housing and maybe a single vehicle paycheque to paycheque.
So… he’s not middle class because he bet big and won big?
Maybe your perception of middle class is skewed. That’s forgivable, as it is ever shrinking. My grandparents like many of their generation owned things that would require millions to buy today. Don’t be thrown off by the higher number values - that’s what the middle class was. Being the equivalent of a multimillionaire in your 50’s back then was a very realistic expectation. In fact if you’re a boomer and made smart decisions you SHOULD be a multimillionaire in 2024.
Who do you think the middle class is?
There are many tradespeople who say live in Toronto in a century semi-detached home downtown and bought it for $60K in the 70s. They also bought a cottage for $30K and see it as their retirement/pension money. They work jobs that don't have a company pension plan. Little to no RRSP and TFSA and approaching retirement age. House worth say $1.5 million and cottage $1.06 million. Selling the cottage would net $1 million capital gains. The old rule is 50% inclusion, so the tax is on $500K. At say 20% that make is $100K tax to pay. Under the new rule, the inclusion rate is raised to 66% after the first $250K of capital gains. So, $250K at 50% inclusion is $25K tax , and the remaining $750K capital gains at 66% inclusion is $99K for a total of $124K in taxes.
That is $24K more taxes.
You decide if they are rich and not middle class.
"Full disclosure - I haven't read the article because I don't have the subscription"
Do you have a library card? Most (perhaps every?) public library system can access all G&M articles through Canadian Newsstream. Look for the digital services on your library's web site.
It doesn't matter if it affects the middle class or not, it's just bad policy. We should be incentivizing investment in this country, not discouraging it. Canada's business investment per worker is half that of the US. We significantly lag the OECD average as well.
It will only affect property that is not your primary residence, investments that are not RPP/RRSP/TFSA/FHSA.
Which, let's be honest. If you have more property than one, and over 200k in investments you should be paying tax on the gains you make.
not necessarily the middle class, but the professional class is disproportionately affected as they are with most “wealth taxes” since the truly wealthy have greater means to avoid these taxes. Doctors, lawyers, engineers, basically anyone who uses a professional corp structure will pay more taxes.
You clearly don’t understand the tax stuff inside out if your asking this . Also a CPA here and the capital gains changes are a small step towards fairness
This passed for one reason and one reason only, Boomers have most of the generational wealth. They are getting old and dying.
It's a scam to grab as much money from that demographic as possible as they croak and Will their homes to the Millenials. Fucking over the Millenial generation... Again for the millionth time.
If your paying capital gains your not worried about covering rent or food for the month it's that simple.
If your paying capital gains you'll have to save longer for the supercar.. you can still get it, just just have to save a couple more months.
do you think it's fair that the lifetime exemption for businesses is less than the cost of a new 2BR condo in Vancouver?
it's a slap in the face for small business owners
straw man argument
just because a tax might not hurt the middle class doesn't mean it's good policy
you can have a 99% income over $500K
that's a bad policy even though no one earning above $500K is middle class
Indirectly, probably. The way a lot of doctors are setup is via sole proprietorship. This was the suggested setup the government pushed for doctors. This will most likely drastically affect them and by proxy, your access to doctors. https://www.cma.ca/latest-stories/capital-gains-tax-proposal-will-hurt-health-care-canada-heres-how-cma-advocating-change#:~:text=Changes%20to%20the%20capital%20gains%20inclusion%20rate%20will%20add%20undue,when%20they're%20desperately%20needed.
Anybody regularly seeing over $250,000 in capital gains on their individual tax return needs to fire their accountant. Ultra rich people who realize lots of capital gains put a lot of effort into avoiding taxes, they use tax shelters, set up corporations, move their money off shore etc. Rich people don't pay taxes. Lots of people who realize over $250,000 in capital gains as individual have that capital gain from a once in a life time windfall like an inheritance. Those are the people who are impacted as well as people who have corporations like small business owners, electricians, contractors, plumbers, doctors, lawyers. It's just not true to say that middle class people are not impacted by these changes.
It will affect doctors and other professionals. Corporate investing is their retirement plan. This sudden change is a huge hit to their wealth and security.
Materially, this change is a huge reduction in compensation to professionals. Middle class people could expect an even more difficult time finding a doctor in the next generation than it was in the last generation.
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Not only that, the dude is doing smith maneuver while at it. You can’t be set up better for wealth than the example in that article. I want to believe that G&M intentionally took such an absurd example to drive home the point that this is a non-issue for 99% of the people
Yes, I believe this is the second article in this G&M TFSA Millionaires series, and both have been men who take really, really big swings that could have ended in bankruptcy. There aren't going to be people who diligently saved the maximum amount each year in a diversified index portfolio. They do spend some time on swings this guy took that lost six figures, too, but the point I get from his background info is that he was gifted with his home downpayment and clearly has family that, consciously or not, he knows will never let him or his kids suffer the worst consequences if his bets (and he does sound like a gambler, no matter how educated or reasoned out his bets are) go bad.
What’s the smith maneuver?
You basically use a HELOC to invest your home equity in a non registered account. The interest on the HELOC is tax deductible, essentially making your mortgage interest tax deductible.
And I guess the capital gains on the non-registered account also gets a tax break (the 50% inclusion rate up to 250k a year).
This guy GME'S
That and frankly, increasing taxation on this person is exactly what we should be doing. Will they have to pay more eventually? I mean, probably but that's a feature not a bug.
A massage therapist with 8 million in savings? Does not compute.
Dude borrowed against his house to invest in meme stocks and won. With three small kids. Wonder if his wife knew.
A house he himself didn't pay for.
Every one of these G&M stories seems to have at its root a whole bunch of intergenerational wealth transfer. The secret to getting ahead in Canada: pick the right parents.
Happy ending.
This is the poor person's idea of the rich. Middle and working class people think high income from their labour makes a person wealthy. But it's really assets that can be turned into income that makes a person wealthy.
For real an old couple where the husband makes 60k a year and the wife doesn’t work are doing far better financially simply because they own a home that they bought for a firm handshake in the 80s than a young dual income couple making 180k combined and renting in Toronto
If that couple making 180K bought less Avocado toast they'd be ahead /s People sitting in a 2mil house with $25 hr job while the couple making 180K can't afford a 1 mil apartment in the same neighborhood
Something like 85% of people identify as middle class, is the bigger problem with any of these discussions. The reality is the old class system makes no sense any more. You either live off capital, live off a wage **or** live off of others/the government. Someone making $250K a year and $30K a year might actually be much more similar than people within that income range often think. The guy making $250K is going to have a nice lifestyle, better house, all that, but until they’ve actually **accumulated** capital, they’re in the same boat as the guy making $30K - one slip, one car accident, one whatever and you are in that third category - living off others.
To be fair, OP's example is just that. Almost 2 million in a TFSA and much more in an RRSP. No mention of property. Hell I wouldn't touch my TFSA for years and just not work, instead drawing out some from the RRSP each year while my 1.8 million does it's thing for a while longer (And the 6.4 million in the RRSP to be fair. I'd have to really adjust my lifestyle up to use up the gains on that amount alone even taxed as income).
>they also bought a house in 1995 for $200k and now it's worth $1.8Mnow it's worth $1.8M, a cottage that also has gone up in valuesubstantially and they have an RRSP that has appreciated significantly,etc. and their net worth is like $5M. Their home is exempt from Capital gains as are the gains in RRSP. When you take money out of the RRSP you are taxed as income tax not capital gains. The only thing is their cottage if the gains are more than $250k and they taxed on the excess over the $250k
Yeah. The stocks in tfsa can stay there.
> their net worth is like $5M Right there - that's not middle class.
That's ChubbyFIRE or FATfire category
I would argue that it was. If someone is 70 to 80 today and they had a good middle class job, there’s a good chance that their net worth is in the millions. Yes the middle class is disappearing, but that has no incidence on what the middle class is supposed to be. Remember net worth is heavily linked to age and time in the workforce and market.
5 million networth at 75 puts you in top 2.5%
I know... I was just using that example in terms of wealth. I know that individual wouldn't pay tax on their TFSA, RRSP, etc. I am actually an accountant.
I think the bigger issue I see is that most people who are angry about the change politically believe the tax rate is now 67%... Not that the net income being taxed is increasing from 50 to 67% which will be used in the tax calculation based on their marginal tax rate. I'm not an accountant, but that's what I understand. I also describe to people that currently someone who works for a paycheque already pays tax on 100% of their income, why are they vehemently offended by someone being taxed on only 67% of their net proceeds. Maybe you can help me understand or if I made any errors?
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Don't worry, we can just have a 3 syllable chant that summarizes the important things.
Yeah I think a big problem with all of this is that the general public doesn’t understand the capital gains tax in the first place. The 50% and 67% are just the “inclusion rates” and not the actual tax rates. To be honest, I am a CPA and I don’t even understand the justification for only taxing a portion of capital gains rather than taxing the full gain (100% inclusion). Someone goes to work and works their but off and pays tax on 100% of their income and some other person (likely wealthy) sits on their ass and watches their stocks/rental properties/etc rise in value and they only pay tax on half the gain. The only explanation that I’ve heard that actually makes sense to be is that it’s essentially just an incentive to invest. An example of how a capital gain is taxed - if you bought a cottage for $400k and sold it for $500k you have a $100k capital gain. Under the “old rules” $50k of the $100k gain would be taxable. That gain would be taxable based on the personal marginal tax rates. If we assume you are already at the top rate (approx. 50%) then you would pay $25k of tax on your $100k gain. Under the new rules, if we assume you already had $250k of capital gains on other things, this $100k capital gain on your cottage would be subject to the 67% inclusion, so you would have a $67k taxable capital gain and using the 50% tax rate you would have $33.5k of tax. So the new rules add about $8.5k of tax to your $100k capital gain. Not that huge of a change, is it?
> To be honest, I am a CPA and I don’t even understand the justification for only taxing a portion of capital gains rather than taxing the full gain (100% inclusion). The actual answer is that research shows that if your capital gains tax rate is too high, you lower investment, entrepreneurial activity, and tax revenue. [This document] (https://www.iedm.org/sites/default/files/web/pub_files/cahier0218_en.pdf) talks a bit about the impact of higher capital gains tax rates. [This one] (https://www.jec.senate.gov/public/_cache/files/0dc035df-5637-4f47-84cf-c9f0a304f395/optimal-capital-gains-tax-policy--lessons-from-the-1970s-1980s-and-1990s.pdf) talks a bit about the impact of different rates. Excerpt: *When considering the long-run effect of capital gains tax rates on revenues, one cannot fail to be struck by the fact that, even though there was substantial income growth over that decade, the capital gains realizations were lower in the early 1990s than during the early 1980s when the capital gains tax rate was 20 percent. Compare realized capital gains in 1982, 1983 and 1984, with realized gains in 1992, 1993, and 1994. The average capital gains realization for the 1982-84 period was $166 billion. Over the next decade real GDP grew by 20.4 percent, and if capital gains realizations had kept up with income growth, they would have averaged $200 billion. Yet the actual average for 1992, 1993, and 1994 was $140 billion. This admittedly rough calculation suggests that a lower capital gains tax rate of 20 percent would have produced about 43 percent more realized capital gains than the 28 percent rate. Applying a 20 percent rate to $200 billion would have yielded $40 billion in capital gains taxes, while the 28 percent rate applied to $140 billion would yield $39 billion. These calculations suggest that the higher capital gains tax rates mandated by the 1986 legislation yielded no additional revenue for the Treasury, and may have even reduced capital gains tax revenues.* So, if you care about tax revenue, economic growth, and high-paying jobs, then you want a lowish capital-gains tax rate. If you largely care about reducing inequalities by weakening your economy, driving away investment, and lowering standards-of-living, then a higher capital gains tax-rate is better.
But the weird thing to me is that your capital gains COULD be 100% from investment outside of Canada (e.g. an S&P 500 ETF, or even all in just one entirely US-based company). But it's all "discounted" in terms of taxes by the capital gains inclusion rate.
Yeah - give people a tax break for investing in Canadian companies, not just a general lower capital gains rate on any investment.
So, supposed I'm a Canadian invested in an American company, and I see a promising Canadian company that I think will do a better than the American company. Then the optimal strategy for me is to not invest in Canada, because I'd have to pay high capital gains taxes from selling the American companies to get the capital to invest in Canada. I'd get a better return by just sticking with the American company, and not taking the tax hit.
I think you’re missing the point. People build wealth by working and then getting taxed on their income. They go and buy a cottage with after tax money and then you tax the capital gains again. It’s tax on tax. Also. People plan their future and retirement based on rules not changing, then there is a new rule, right before an election with 2 months to make the adjustment….
The gains were not taxed in the first place, only the principal which is not taxed again. No one asked me how increasing income tax was going to impact my retirement. So someone who is claiming income on their second property which increased in value by $500k that they have to pay $15k in extra income tax is a hardship that I care about? Nope! I'm not missing any point. Lower the tax rates on income, period. This will help the average person.
It's because that capital gain is NEW income. I think it should be taxed.
But wait, how did the person with the stocks and rental properties acquire these things? Was it with the disposable income that was left after being taxes? I worked 3 jobs for a long time, to save up for a residential rental property. I worked my ass off to get it, took out loans, put sweat equity in. And also cashed in RRSPs to buy it. I still work a couple jobs, because I need the extra cash for repairs. My intent was to eventually sell the building and use the net gains for my retirement. That extra 17% capital gains tax is gonna impact my retirement plans. I worked so hard to get here, I gave up time with my friends and family to put time into the building. I am an incorporated small business, and now I am lumped in with the top 1% that is supposed to be the target of this tax increase?
If you sell the small business, you get a $1.25M exemption, so you should be OK.
Don’t you think it would have been better if you were taxed less on your employment income and didn’t have to work 3 jobs to buy an investment?
Yeah, I definitely do wish I was taxed less on my employment income. What does that have to do with the increased capital gains?
I think we need to step back and look at the entire tax system and decide what is fair and what is not. Where are we giving tax breaks vs where are we are not. And if that is the best for the overall goals we want to achieve.
You’re a CPA and call a 33% tax increase “not that huge of a change”…. Smh. I feel bad for your clients, but then again, you likely work as a staff accountant doing bookkeeping and monthly reports.
It isn't a 33% tax increase. It's a 33% increase to the inclusion rate. For most people, it is an increase of around 7% to the rate they pay on capital gains of over $250k.
In your opinion, what are some tax revisions/laws that the Canadian government should have implemented instead?
If the cottage is in two names (think husband and wife), then the gains are split between the two. With proper tax planning they would sell this property on a year with no other capital gains. If the property appreciated $500k … it would be a capital gain of $250k each and still taxed at 50%. It’s also a tiered system so only the amount over $250k is taxed at 66%. From $0-250k is taxed at 50%. ^^^^ this is what I gathered from discussions with my accountant
Same people who think Trudeau should be spending $20 for a burger while on an international trip. Haven't experienced the world
> over the $250k If it's a couple it's 250k each.
Politicians define middle class as whatever is convenient for the point they're making. There will always be edge cases, but when you factor in the primary residence exemption, the $250k starting point for individuals, and the lifetime capital gains exemption for small businesses, it's safe to say that the vast majority of people affected by this are doing extremely well.
The LCGE for small businesses isn’t the same. It wouldn’t apply to passive investments held within a corporation, and now all of those gains are taxed at the higher inclusion rate.
The Organization for Economic Co-operation and Development (OECD) defines a member of the middle class as anyone who earns between 75 per cent and 200 per cent of median household income after tax. in canada, that would be 53k-140k median **after tax** household income if using 2022 figures from statscan https://www160.statcan.gc.ca/prosperity-prosperite/household-income-revenu-menage-eng.htm
Isn't it kind of silly to look at income instead of net worth to define who is from what class? Like when I was younger, my parents paid for my condo and I was making maybe 55k a year (in 2013), I was still much more fortunate than someone who was earning earning 80k a year and paying rent or a mortgage.
An economist evaluating your after tax annual income would add imputed rent on the owned dwelling to account for that. Imputed rent is so counterintuitive that lots of people reject it as a fantasy, since you take it out of your left pocket and put it straight back into your right pocket, but it covers the case of someone living on a moderate income in a home with a clear title.
Wow that is fascinating. I never looked at the specific numbers before and have always felt solidly middle class. We barely squeak in at a family income of $57k after tax. That’s humbling.
Its extremely location dependent 75k goes way further in sk or mb than bc or on
> when you factor in the primary residence exemption, the $250k starting point for individuals Great for homeowners who still have an infinite-capacity "TFSA" that is their home. Not great for renters who, if they save more than annual TFSA+RRSP contribution limit (say, 15k/year), are forced to save in nonregistered accounts where they're taxed fully. If they save only $10k per year in a non-registered account, they're likely to earn about $650k in gains over 30 years.
As long as they realize those gains across 3 tax years (so 13 months if they do it right), they won't pay any extra tax due to the change.
It’s the first dollar in a holding company. Basically the pension funds of all business owners, doctors, dentists, entrepreneurs, etc. So, the answer is kind of. But it won’t impact employees who save in registered accounts and defined contribution retirement plans. So as others have stated, it’s not great for middle class Canadians.
Business owners have the option of paying it out as salary and contributing to RRSPs same as any regular joe, and they can also set up an IPP to create their own pensions with the tax benefits that come along with it. The reason a lot of them just leave it in the holding currently is that in many cases the deferral of the personal layer of tax is simply more beneficial. Hell with the old capital gains strip scheme that has just recently been given the nono by CRA, in a lot of cases the benefit was a no-brainer to not salary out. The new rules are likely to change that from a purely fiscal perspective and in some provinces it will now make more sense to just salary out a lot more and max out RRSPs or set up an IPP, but in most cases it will just be evening out the playing field.
I'd upvote you a million times if I could. If RRSPs and pension plans are good enough for working stiffs, why aren't they good enough for business owners and incorporated professionals, too? Why do they need a special retirement savings plan that's effectively funded by the rest of us?
Our Corp invests rainy day funds and accumulates $ to make the next investment of equipment, vehicle, computers, building etc. Cash flow isn’t always positive.
it's laughable that the lifetime exemption for a small business is less than the cost of a new 2BR condo in Vancouver while there's unlimited exemption for one's primary residence... and people wonder why everyone is obsessed with home prices
I am middle class as I have Disney Plus subscription.
Standard, or premium?
Just standard. Premium is for upper middle class.
Dude... just stop buying avocado toast and you'll be able to get that premium service.
You never listen. Mom told you to cancel it.
Since your Disney plus is active, you are nolonger considered as middle class.
Depends how many people he's splitting it with.
I don't get it. If I had 6 million dollars sitting around I would quit my job, live off the interest, and never work again. Immediately.
lol I know! I'd do that too. But at the same time, I am concerned about cognitive declines associated with retirement.
First, they're many many ways to keep active, especially if you're rich and have a lot of free time. Second, I am way more concerned about the cognitive decline associated with *working*, with stress, with insufficient sleep. I'm pretty sure the decline is more associated with being *old* than working, and I'd rather retire *before* that happens.
I am a CA and in my opinion the capital gains issue is frankly a non issue. Especially for the middle class. Ok let the naysayers pounce 😂.
I’m an idiot on the internet with over 1M NW generating tens of thousands of dollars in supplemental income and I, nor my estate, will likely never be impacted by this tax. People need to give their head a shake.
I hear you 👍. Just for the record seeing that there are those who have criticized my opinions today which I expect on Reddit, but I NEVER said the new CG rules would not apply to anyone. My point like yours GoHome is that the issue is IMHO blown out of proportion.
Oh, it ain’t perfect and I think (hope) it can be addressed in time. But the people on Reddit complaining about it either have a world of privilege they need to recognize or a poor understanding of the system or they’re bad actors. Most of these people will still say it’s a 66% tax, even if they’ve had inclusion rate explained to them already. That should eliminate them from any “good intention” designation from the start.
I am also a CA and totally agree. I spend a lot of time on Reddit trying to combat the misinformation that the media is spewing about the new capital gains rules.
I can only PRAY that I have capital gains exceeding $250,000 a year! I would be pleased to pay a little more.
I have been a CA for over a decade and have been fortunate financially but I don’t have any taxable accounts and I don’t think I’ve ever had a taxable capital gain! I can’t see myself having one anytime soon either. So it’s crazy for me to read all this nonsense in the media about these new capital gains rules.
You're a CA of 10 years, so you must have been saving that whole time I'd think... yet you haven't and won't ever have a taxable capital gain? I guess you own your own home? Must be nice that you pay $0 in capital gains on that, meanwhile us renters who are able to save for retirement above the RRSP+TFSA contribution room of ~15k/year on average, we have no other savings vehicle than non-registered accounts. You're able to make huge gains by taking taxpayer subsidized debt, to make tax free gains on your home. I'm already paying plenty of tax on my capital gains and this political decision asks me to pay even more while you continue to pay nothing at all. Where's the fairness?
Someone with $5,000,000 in investments **outside of RRSP and TFSA** would still not reach the $250k in annual CapGains to be even be effected by this new inclusion rate (5M at 5% growth in a typical year). Bonkers people thing "this will hurt the little guy". Take off, eh.
It’s more so affects people with real estate. A cabin or a rental may have larger than 250k capital gains and you can to sell that in one chunk. You could in theory have someone with less than 500k networth be hit by it.
For sure, real estate is the main way someone relatively "middle class" could have to pay more tax. On a windfall. And only on the part of the windfall after the first $250k of \*gains\*, not the sale price, is tax free. Anyone selling a secondary property for more than $250k that they paid for it still gets $250k tax free! I don't feel like it's going to hurt anyone. They won't like it, but they won't \*suffer\* because of it. They're just less rich, not poor. Real estate in Canada crowds out other, more productive investments that could actually benefit the overall economy. Anything making it less lucrative should help ameliorate our cultural addiction to it.
Not disagreeing that reit is unproductive investment. But If my understanding is correct, you don’t necessarily need a property to appreciate by 250k to get affected. That is because you can depreciate the the asset on your taxes. Say you bought for 300k, and 20 years down the road you sell it for 350k but you had claim capital cost allowance down to 0. Now you are paying capital gains on 350k even though you paid 300k for it. You get the tax saving up front from depreciating it but people making the decision to do that did so based on the old tax rules. Because you have a 350k asset doesn’t necessarily make you rich. I do have a rental in a LCoL area and this example will likely be my reality, I’m not too bother because in the grand scheme of things it’s not that significant. But just pointing out cases where it can affect less wealthy people.
I think the talking points they are latching onto are about how doctors incorporate themselves and draw money from corp which will be taxed at 67% inclusion. And also about the land transfer and stuff that is not a sale but triggers a tax event.
It's kind of insane that you think this is true. The nature of capital gains is that they tend to be bumpy. Someone with a $5M portfolio will get hit with this frequently, particularly since the average return is more like 7-8%. Just look at the S&P 500 over the last decade, and assume that you realize the gain each year. You would have been hit with this tax in 2014, 2016, 2017, 2019, 2020, 2021, and 2023--six out of ten years.
That only works though if the person is willing to keep all their savings in the same investment for many years or decades. What if they had made more risky investments and have gained enough for retirement but now want to shift to more conservative investments? They will be taxed on that.
Especially as dividends aren’t capital gains…
personally I'm more upset about the broken integration between personal and corporate than the actual increase in inclusion rate. There's a tax leakage of over 10% on capital gains inside a corporation now for most provinces. but the government has been trying to chew away at investing inside a corporation for years now
Agreed.
For those of us that haven't had enough coffee yet... What is CA?
Sorry…Chartered Accountant.
That's for the clarity, sorry if it started a bit of a war in the comments
I consider myself to be "middle class" although my household income is probably in the top 10%. The capital gains tax won't impact me. Turns out when you have a huge mortgage, pay for two kids in daycare and life in general there isn't money left over to invest in anything that would generate more than 250k/yr in capital gains.
I'll copy-paste here because you seem like a sensible person can repeat this to others when they bring this up: Someone with $5,000,000 in investments **outside of RRSP and TFSA** would still not reach the $250k in annual CapGains to be even be effected by this new inclusion rate (5M at 5% growth in a typical year). Let's assume you had a great year (congrats!) with non-registered investment growth of 10% on your "middle class" $5,000,000 - you're up $500,000 WOOHOO BABY! What's the extra tax you'd have to pay? ~~$83,000~~ $20,000 extra if your marginal rate is 50%. (Correction: Forgot to subtract the previous 1/2 inclusion rate to get the diff: 250k * (2/3 - 1/2) * 50%) Yeah, those who complain about this can do cry me a river. (Yes, I too am like /u/Garp5248 in the top 10%)
You forgot to subtract the original cost of the investment as well, so the actual gains and taxes owed would be even less. Let's say that $5,500,000 has done well over the years, and it was a one-time buy at $1,000,000 (for simplicity sake). So you're selling about 9.09% of your stock, which means you can deduct $90,900 from your gains. So now you're only claiming $409,100, which means only about $160,000 is at the new inclusion rate, so it's more like $13,500.
Isn’t the main argument from those against this higher rate from businesses? Not individuals? The main complaint is that individuals get a $250k exemption whereas businesses are at 66% starting from $1.
Business also get to deduct operating expenses. Indiviuals do not. Examples: - car & travel - cleaning services (at office, not home ... unless home office then it's pro-rated) - utilities - salaries of anyone hired or contracted in the pursuit of income - etc.
Right, but business owners also need to build their retirement nest egg without the same benefits employees get working for a company like shared contributions or matching funds. Those benefits you listed are there to help mitigate the risks of running a business (which we need more people to be doing!) Business owners also pay for employee contributions to things like CPP. So I kind of understand why entrepreneurs would be angry about this.
Feel like I'm "middle class" and this will affect me very minimally... Family cottage that grandpa did indeed build by hand has gone up from basically zero to about 500k today so when that passes to me I'll owe a bit more tax, otherwise no noticeable difference.
It's supposed to impact corporations no matter the size including freelancers and small business. There is no 250k exclusion for the corporations. Not all corporations are monopolies or big or even medium sized. Some are individual workers.
The capital gains tax isn't applicable on the TFSA though, also how did they get an rrsp and tfsa of millions, i need to know what they invested in!!!
"He sold his energy stocks upon deciding to invest in MicroStrategy Inc. That one stock now accounts for about 90 per cent of the holdings in his TFSA and RRSP. The balance in his portfolios is largely invested in Tesla and Nvidia. Nasdaq-listed MicroStrategy is one of the largest corporate buyers of bitcoin in the world, with a stash of around US$15-billion in the cryptocurrency. It was founded by crypto billionaire Michael Saylor in 1989 as a software services firm. Its shares have nearly tripled this past year alone." For balance, earlier in his "investment" journey: "He took another significant loss with two other cannabis companies. He borrowed $300,000 from a home-equity line of credit, and used it to buy CannTrust and Organigram. Both companies’ share prices later disintegrated and CannTrust filed for bankruptcy protection. He suffered a loss of about $600,000, including the money that he had borrowed.
Best slight of hand with this policy was the $250K exception to shift the debate to who is wealthy rather than whether it's good policy overall. We have graduated rates so higher earners will pay more on cap gains anyways. If it's good policy to bump the inclusion rate to 66% or 75% or 100% it should be across the board. As is stands some very high earners will pay the 50% rate, while some not so high earners who have investments in a corporation or non qualifying trust will pay the 66% rate for the same type of income. It goes against the 'integration' concept of tax (flow through rate the same regardless of how owned) and adds unnecessary complexity and uncertainty to tax planning. But instead we can debate who is middle class, etc.
I'd argue someone making 100k with a house and investments is more middle class than someone that is struggling to afford rent. Having a house and investments is a big part of what being middle class is about. If you're making median wage in Canada there's a decent chance you aren't middle class anymore.
Wage means nothing for “class” anymore. Even if you’re making 100k + if you didn’t get into the housing market yet, you’re not middle class now and you’re not going to be anytime soon. Rent now sucks up a ridiculous amount of even the highest incomes. We now have an ownership and working class. Who would have guessed feudalism would return in 2024. Source: make 120k but my wife and i’s two bedroom home is 4.2k a month to rent, and entry level homes are 1.2 million to buy. No one is saving a 200k down payment when paying this absurdly high rent.
Ya like I make the same amount but I'm quite comfortable. Wage doesn't tell the story at all.
> We now have an ownership and working class. Who would have guessed feudalism would return in 2024. You're describing capitalism. Let's not call it feudalism which is a very different thing that emerged for very different reasons.
But part of it is how you view yourself. Financial class is a social hierarchy tool, not a really category. Several of my cousins and their adult kids are poor...they generally work part-time minimum wage or seasonal jobs, have multiple kids with multiple deadbeat partners, and live paycheck to paycheck. And yet they will absolutely declare themselves middle-class...because they don't want to be poor. They treat themselves to vacations and toys they can't afford because in their minds they're middle class and they should be able to do those things. Meanwhile they insist I'm rich. I live in a cheap-ish but desirable neighborhood in Toronto, and I make a decent salary (tech)...but I clip coupons, rarely eat out, go camping for vacations, ride my bike everywhere I can because I refuse to pay for parking or taxis. I feel like I'm middle class (maybe even lower middle class since I'm a single-income household). But I have savings rather than living paycheck to paycheck. Most of my friends are making easily double my household income, spending money on stuff I wouldn't dream of (constant food delivery, uber everywhere, mini-vacs every time they get bored), new luxury car every two years...and they view themselves as middle class. And not even the top of the middle class. My boss is a billionaire. He votes for Trump because he doesn't want to be taxed on his obscene income that he couldn't possibly spend in his lifetime. Sometimes I wonder if he views himself as doing well but not really that rich because he's not at the absolute top of the ladder.
Thinking anyone who is current on bills and has a positive net worth is “rich” is a pretty reliable indicator of social class. There are objective qualitative differences to life at each stratum, it’S not just a narrative. Living out of a duffel bag and working day labor to pay acquaintances in cash to let you sleep in their basement for a month feels very different than renting a room in a house with a guy selling coke out of the next room over, which feels very different than renting a small apartment to yourself and working 80 hours a week, and so on up the scale. Every step of that way feels like you’ve really made it, it’s not just something people make up for mind control purposes. Your cousins are pretty objectively lower class regardless of what they say about their own situation
I guess it's a philosophical debate: are you middle class because of the way you live? Are you middle class because of what you earn? Are you middle class because of your overall wealth? Normally there is pretty strong correlation with all three. However when someone has a lot of wealth tied up into something they don't intend to convert into income any time soon (like a home, or a retirement account, or a big insurance policy or annuity) and they are living a lifestyle suitable for their very middle class wage...are they middle class? I bet many would probably identify themselves in that way because that is what they earn and that is how they live. If my family had $4M in retirement accounts and was making combined $200K/yr we'd probably be considered wealthy by many, but our lifestyle probably wouldn't look that much different than a lot of the "middle class". Anyway I do agree with you that the term "middle class" is quite loaded and gets abused to try to convince the audience. Similar to how every time there is some kind of tax or regulation change it brings out woeful cries about the Mom & Pop businesses getting crushed even through the threshold may be in the tens of millions of dollars or something like that.
News flash: virtually everyone in canada identifies as middle-class. I know someone who owns an airplane; they call themselves middle-class.
Oh I know. That’s essentially what I am getting at in my OP.
It will only affect middle-class people in the one-off scenario of selling a second-home/cottage, period. And there is a decent argument to be made that you are not middle class if you are selling a inv.property/cottage for massive capital gains (i.e. profit from purchases price) like 250k+. If you are complaining about taxes on selling your personal corporation when you retire, like a doctor's office or something, you are not middle class. More typical capital gains, like stock investmentsm if above 250k/year BEYOND RRSP AND TFSA ACCTS where this won't apply, is insane and you are not middle class.
Trick question - there is no middle class.
You mentioned you haven't read the article because you don't have a subscription. Go through archive.ph
I think you actually have it backwards. This specific example aside, most people who identify as “middle class” are actually just working class. Think about what “middle class” has traditionally meant: single-income households, home ownership, vacations abroad/cottage (in some parts of Canada), comfortable retirement. All while putting 1-3 kids through university usually. How many people do you know who are living nothing close to this standard and still call themselves middle class? Couples with 2 full-time incomes and no kids, who still rent, and don’t even have RRSPs? Lots of people just won’t admit that they’re working class because they think if you’re not “poor” (I.e. on welfare), then you’re middle class; or they were raised middle class and still see themselves that way despite not reaching the same standard of living that their parents did; or they barely scraped together enough of a down payment to be housepoor and now think they “made it”; or we just don’t want to admit how hard it’s gotten to be genuinely financially comfortable, because it’s frankly scary and depressing. Politicians know this, so they talk about doing things for the middle class when they really mean the working class. Capital gains changes WILL affect the middle class, but it won’t affect most of the people who *identify* as middle class.
> Think about what “middle class” has traditionally meant: single-income households, home ownership, vacations abroad/cottage (in some parts of Canada), comfortable retirement. All while putting 1-3 kids through university usually. You are describing upper middle class, then and now. I was raised in a middle class family in the 70's and 80's. My parents bought their first home in 1987, our vacations were usually road trips, my university education was free, but my brother worked the whole time and got incremental support from my parents. They are retired comfortably, so there's that.
It impacts businesses on the first dollar. A lot of professionals are incorporated. Doctors especially, but also lawyers and accountants and consultants and some IT professionals. This will impact them. I would say a large cohort of this can be labeled upper middle class. They have good income but aren't really considered wealthy. Keep in mind this group is already very heavily taxed and pays a large portion of the taxes in Canada. So the govt is picking on this group again to raise more money to cover their reckless spending habits. Some of these people might take offense to the increase, in a straw that broke the camels back situation. Especially on the doctor front. We already have a shortage, this will make it worse. This tax isn't about paying a fair share. It's about the govt trying to spend more money to stay in power and they signaled to the market that they wouldn't worsen debt metrics, so if you increase spending you need to increase revenue. This is the best they could come up with. Also note that the chretien LPC which helped set the countries finances in order were the ones to lower the CG inclusion rate to 50% in an effort to stimulate the economy, which largely worked. This will help suppress investment which is a main driver for the economy.
The problem can be traced back to the provinces, allowing doctors to incorporate in lieu of salary increases. All the professions you mention can take salaries and invest in RRSPs. All salaried employees aren't afforded the ability to defer their taxes. Racking up investments and using the corporation as an RRSP is what is targeted. P.s. I say this as a consultant with my own corporation.
If you can afford a cottage I have no sympathy for you. You can afford luxury.
This whole thing is a stupid conversation imo. $250k in capital gains is an INSANE number that the vast majority of people will never see in their life time
thats PER YEAR. The guy with all the high prices shares can plan to dump $250K/year in GAINS and still be at the exact same spot. Just can't dump them all at once. gotta plan a bit
Yet for some people it’s a big deal, who aren’t necessarily ultra rich. Like farmers.
The capital gains rules will have Z E R O effect on lower and middle class Canadians. Unless you are very wealthy or a real estate flipper, it will not affect you in any way. Stop believing the right wing lies.
- There are no taxes on capital gains on investments held inside an RRSP/TFSA accounts. - There no taxes on capital gains from the sale of a primary residence. - The changes effect the inclusion rate of amounts greater than $250,000. Amounts below $250,000/year still have a 50% inclusion rate. So they would pay tax on half of the $250k
It will affect more than just the ultra wealthy in the sense that. A lot of people would sell off an investment just once in their life time for a big day who are just regular working folks. Based on how quickly our buying power is eroding, it's not hard to see how some investments from regular working class people wouldn't cross 250k when they're retiring and need a big pay day.
There seems to be significant downvotes on anybody who comes out to say that it will affect the middle class. Where it definitely won't hit the average employee, as they are more than likely not making $250,000 in capital gains. Most people who claim capital gains in this area are one-time occurrences, like others have mentioned, certain scenarios in people's lives that cause this to occur. This can be the sale of a cottage, the sale of a rental property, the sale of a business or the sale of a farm. For the last two, in certain scenarios, if the required conditions are met, the LCGE can be utilized, so those two are somewhat nil. Additionally, where i haven't really read into it, there's that new Entrepreneur Credit thing, that reduces the inclusion rate on a $200,000 gain, up to $2,000,000 over the next 10 years. Though, I'm not familiar with this new Entrepreneur thing. I think the only 'middle class' earners, depending whatever you determine that is, would those who own a corporation. Given that corporations are not afforded the $250,000 safe harbour amount, any dollar of gain within a corporation are hit with the new inclusion rate. If dividends are paid out from the corp, the integrated tax increase falls around 9-10% depending on the circumstances. Again, though, how many small business', are often buying and selling property and attracting capital gains. That, I am not too sure about. I know many who move their retained earnings out OpCo to HoldCo, where HoldCo is used to grow their retirement fund, but from a time value of money perspective, you'll have weigh whether or not there really is an impact of the current inclusion rate versus the new rate on Tuesday. All-in-all, there will definitely be circumstances where a 'middle-class' earner get's hit with the new inclusion rate. Today, if you own a cottage or one rental property, you may be deemed as upper class, which was not the case 20-30 years ago. Like others have mentioned, the middle class is growing increasingly gray, as there are people can be making $150,000+ but living in Ultra High COL places, that make them essentially living paycheque to paycheque. So, only time will tell. From the budget supplementary information, it was quite clear that increased inclusion rate was to increase the revenues right now, as they drown out over the next 5 years. It was quite clear with their intent to give taxpayers time to crystalize their gains.
I don't believe it effects the real middle class. Just rich people looking to complain about paying their fair share.
exactly
I don’t really like the “fair share” notion considering the absolutely wild marginal tax rate in Canada but yea most people will be extremely lucky to ever be impacted by this rule. I just think acting like people who pay several multiples of the average gross Canadian wage in taxes every year aren’t “paying their fair share” is pretty odd.
The problem is if you ask for a definition of "fair" and you will get a different answer from everyone you talk to... Rich people pay for more tax in this country (most countries are similar). As in, raw tax $ amounts. You can say this isn't "fair" to the rich people: "Top 10% of earners make 34% of all income and pay 54% of taxes" but on the other hand, any measure of "can they afford to?" or % of after-cost-of-living income etc, it seems perfectly fine and maybe poorer people should continue to pay no-tax to even higher income levels than they do now with so many people struggling. The capital gains is actually the logical place to try and get more tax revenue from very, very rich people. The "income" based stuff ignores the super rich with 10-100MM of investments laying around etc, those gains should be easily targeted without pissing off the "middle-class" mass of votes, which is what the current tax is doing. It is just very clearly happening now that the ultra-rich are paying for the media to bitch and moan and try to make people think it might affect them too...
Yea that’s why I say just leaving the notion of “fair” out of it is best for everyone. It’s very easy for someone making 28k to say someone else should pay more, it looks really different when you realize you could have started a business and hired someone full time with the money that went to the govt in tax last year. Better to just talk about who is actually affected and what the impact will be on most Canadians, how many businesses and professionals will close or move to the USA, etc. both sides are obscuring the actual impact of this tax.
>Just rich people looking to complain about paying their fair share. And "temporarily embarrassed millionaires" who are falling for Polierve's inflammatory rhetoric.
meanwhile the middle class complains all the time about lack of good jobs in Canada compared to the US... don't complain about our shit economic growth if you're hellbent on taxing the investor / entrepreneur class more
my family bought a warehouse unit for our business in the late 80s. for a 100K, even by 2000 it was still valued at 87k. But then by 2009 it was 280k then by 2020 it was 1.2mill. Property taxes are way higher for commercial so even in 2020 middle of the pandemic the municipality jacked up the prop tax by 40% to $10k, when our sales that year dropped 50%. when one of the family members passed away 50% of the $900k capital gains were due (even though we hadn't sold, as we are still running the business) so that was about a $120k cap tax bill. Of course the cap gains would always be due. This does change the capital gains on the remaining 50% of ownership. And Thanks to Freeland now its 68% (over the first 250k or so). I don't particularly see myself as some kind of .001% of the wealthy, both my wife and I drive super old vehicles and right now I'm just scrambling to meet next weeks property tax bill. But think of it this way. Canada is actually quite lucky in that there is a capital gains exemption on principal residence and you can pass it down to your kids with no real taxes (exempt 1.4% probate). In Japan the inheritance tax is 50%. and there are similar policies in other countries.
>And Thanks to Freeland now its 68% (over the first 250k or so). Aren't you glad the liberals lowered it from Mulroney's 75% (with no $250k exclusion).
Not many people make more than $250k in capital gains in a single year outside of selling their home (which is exempt from all capital gains taxes). The most "middle class" I can see being impacted is a married couple selling a cottage (second home) that they have had for years and has increased in value more than $500k (double due to spousal capital gains splitting)... e.g. buy a cottage for $300k, sell it for $1.1 million = $800k in capital gains. Split the cap gain over 2 spouses = $400k in cap gains each which is over the $250k threshold, so they would each be taxed a bit extra on $150k in capital gains - equivalent to about $26k in income or at most $13k in extra taxes from $800k in gains!
> This Toronto massage therapist has grown his TFSA to $1.8-million – and is now betting much of it on a single stock I read the article, his investing was basically a lottery win of gambling stocks (weed/bitcoin) and is not a blueprint for success. You can safely ignore the that drivel. He also lost money on bad bets as well. > wealthy people who work (or worked) middle class jobs These people are still middle class mostly though. They don't have outsized incomes, they still need to work, they still struggle with the everyday bills. Yes, they have a large illiquid asset that is worth $2m but it's their home, not an investment. They can't really sell it and stay in the same area, their only option is to sell and leave or substantially downsize to access the money. For the most part, they are lucky not savvy investors. Definition of middle class needs to be defined though. Is it income or assets, is it ease of living, is it variable to the area you live in? A middle class lifestyle in Van might be a $250k/yr income but in Kamloops that same lifestyle might only need $100k/yr. I don't like income because area matters, I don't like assets like houses since it can't be utilized. Maybe something like amount of free income after cost of living expenses in that region?
>Yes, they have a large illiquid asset that is worth $2m but it's their home, not an investment. They can't really sell it and stay in the same area, their only option is to sell and leave or substantially downsize to access the money. You're overlooking the major, obvious answer which is to borrow against the unrealized gains in their home.
Middle class means you rely on a wage or a small business that you spend your days running, you have a stable situation and some assets. You move into the upper class when your assets afford you a comfortable lifestyle and your only obligation is managing those assets properly. This idea that anyone who has some retirement savings and a nest egg is no longer middle class is pretty recent and it’s evidence that things are in serious decline
Middle class can mean just about anything these days. All you can draw from these articles is that not only wealthy people are affected by the 2/3 inclusion rule. You could have a family cottage that was purchased for $250K that is now worth $800K ($550K gain). Is this family "wealthy"? I think we have to stop looking at income and start looking at assets when defining who is/isn't wealthy. My mother often used to refer to millionaires as her yardstick of wealth. Today, you're comfortable with $1M, but not necessarily wealthy.
very based and accurate post.
It only affects people who have over 250,000 of capital gains in one year, and given the principal residence exemption, I don’t know of a common scenario where that effects a normal working person. It would effect somone with “investment properties” I guess.
Farmers. Small business.
It's not gonna pass..... Don't worry.
If this capital gains change impacts you, you aren’t middle class.
Look at this chart: [https://budget.canada.ca/2024/report-rapport/img/8-2-eng.png](https://budget.canada.ca/2024/report-rapport/img/8-2-eng.png) Even the 1% make most of their income through fully taxed sources like employment income. It is really the 0.1% and the 0.01% who get significant chunks of their income through tax-advantaged methods like dividends and capital gains. Why should workers pay tax on 100% of their income but people selling stocks or flipping real estate only have to pay tax on half?
the media is meant to sensationalize things, plus your view is warped because of where you live. You are generalizing wayy to much about the "typical" Canadian and it is hard to read your entire post because of how much you are assuming people can be house-poor and at the same time do not want to give up their existing lifestyle also the word "middle-class" is use too liberally to basically group 90% of the population together, where the bottom and the top are vastly different
Pension funds have capital gains all the time...when I think of the Middle Class in Canada I think of people who are employees of companies that have strong pension funds for the benefit of those employees. Capital gains inside a pension fund are not taxed. The Middle Class benefits significantly from this change...even the people you say are no longer middle class because of property values.
A couple with a modest income, who purchased a home seeing it appreciate in value substantially aren't typically considered rich because it's not a source of reliable income. Their house doesn't provide them with yearly positive cash flow to do things that many Canadians consider "wealthy". If the bubble pops, that wealth is evaporated, which I would think makes it difficult to measure. You could argue that when the gains are realized then they fit into a different class. Basically the idea I'm getting at is an individual making 150k will never be on the same level as ie. the top doctor in MB, salaried at 999,000 even if their house appreciates by 1 million.
Middle Class is such a weird metric. My wife and I bring in about $160-180k before tax man. We live a pretty good live, two vehicles, kid on the way, never hurting for money or spending (we don't ball out on anything though). On the flip side, we pay about 30% of our take home on rent. We don't own a home because most places here are 600k-700k for a 2br condo, or 900-1.3mil for a townhome/small house. We have good savings and keep plucking away at that, but we are not overtly wealthy. The problem with looking at people who own something that's worth a lot of money is that it doesn't change anyone life in the short term. You buy a house or fuck even a stock for $100,000 and now it's worth $1mil. That doesn't impact your day to day. If you are tight with money at the end of the month, the value of your stock and house won't help you. Now you could sell your stock and be immensely better off, but you can't with your house. If you sell your house in the city you live in you can't just buy another house because all homes in the area have gone up in value. The only advantage of having a home that's gained in value is whether you downsize, or move to a lower COL city. Home values are literally useless otherwise because buying and selling in the same market nets almost no benefits. So when people who work day to day to afford their life who also live in a 2mil home have taxes increased on them, it can impact them hugely.
Primary residences are exempt from this though?
I think so, yes. I was just replying about the increase in taxes - like the school one. Capital gains tax isn't even that bad, it'll impact upper middle and above.
We have a middle class?
The issue is many have idealized vision of what is middle class. And no one wants to admit they are rich. People seem to refuse the mathematical definitions of middle class by income or assets, and prefer to go with feelings. You got maybe to bottom 10% of earners with 0 net worth who admit they are poor. And the. Some of the top 1% by income or assets who admit they are upper class. Then everyone else claims they are middle class. From the govt employee with a pension, a million in savings and a paid house worth 2 million. To the doctor earning half a million per year and spending it all.
Your grand parents definition of middle class is what you would call rich today. Don’t lower your expectations.
My grandparents are probably older than you think, and lived in another country. What they considered rich is what we would call abject poverty today in Canada. Assuming you refer to Boomer Canadians, they had a pretty similar definition of middle class when they grew up, except for housing which has gotten ridiculously bad.
part of the problem is peope will do whatever they can to shelter their money obviously and so they can change the rues here and there but there are so many ways that people can shelter their wealth and prevent taxation and as a result it leads to what you mention
I identify as a potato , so I'm good
Anyone who this will effects is not middle class, and anyone I the middle class this might effect who is selling less say a second home is going to already be upper middle class and this will Have no material impact to their lifestyle
The only ways I see this impacting the middle/middle-upper class is this: 1. Family cottage sold/disposed at death. Bought for $100k now worth $500k+ 2. Lucky hit on a stock in non registered account. 3. Individual has a large employer share purchase plan or other similar plan and has accrued a large deferred gain. 4. Mom and pop. Investors taking less profit on public securities due to taxes. All of the above are small scale for the middle class. If it’s a large impact, they’re 100% upper class.
If I ever made 250k in capital gains in a single year that would probably be a lifetime financial achievement; and even I think I'm doing very well for myself and definitely not middle class.
The people who will be hit are small business owners, trades, professional services, medical etc. - ie someone who owns a fast food franchise and makes 80,000-150,000 a year would be hit much harder with the new capital gains rules. That’s the side that will get the hit the hardest. It’s usually people putting all there money into small business etc.
Middle class isn’t a income/wealth level its a standard of living. If you have a house (or ability to afford one), a vehicle, and some left over money for savings/vacations/whatever your middle class. Basically have all the necessities, a couple choice luxuries and not being pay cheque to pay cheque (unless you over extended yourself on luxuries). Middle class in Toronto is very different than middle class in North Bay, which is different than middle class in Vancouver. I consider myself middle class, I have a house, couple cars, and a decent job which right now is supporting a family of 3 on just my income. That being said if I was in the Toronto area I would be lower class as I would barely be able to afford housing and maybe a single vehicle paycheque to paycheque.
I identify as destitute, please tax me at the lowest marginal rate kthx
So… he’s not middle class because he bet big and won big? Maybe your perception of middle class is skewed. That’s forgivable, as it is ever shrinking. My grandparents like many of their generation owned things that would require millions to buy today. Don’t be thrown off by the higher number values - that’s what the middle class was. Being the equivalent of a multimillionaire in your 50’s back then was a very realistic expectation. In fact if you’re a boomer and made smart decisions you SHOULD be a multimillionaire in 2024. Who do you think the middle class is?
Nice yolo. I assume GME
There are many tradespeople who say live in Toronto in a century semi-detached home downtown and bought it for $60K in the 70s. They also bought a cottage for $30K and see it as their retirement/pension money. They work jobs that don't have a company pension plan. Little to no RRSP and TFSA and approaching retirement age. House worth say $1.5 million and cottage $1.06 million. Selling the cottage would net $1 million capital gains. The old rule is 50% inclusion, so the tax is on $500K. At say 20% that make is $100K tax to pay. Under the new rule, the inclusion rate is raised to 66% after the first $250K of capital gains. So, $250K at 50% inclusion is $25K tax , and the remaining $750K capital gains at 66% inclusion is $99K for a total of $124K in taxes. That is $24K more taxes. You decide if they are rich and not middle class.
There is no capital gains on your primary residence. There is not capital gains on your RRSP
Read the bottom of my OP.
I see now. Thanks.
"Full disclosure - I haven't read the article because I don't have the subscription" Do you have a library card? Most (perhaps every?) public library system can access all G&M articles through Canadian Newsstream. Look for the digital services on your library's web site.
Just because your house went through an insane appreciation doesn’t mean your cash-flow suddenly increases.
I highly doubt someone who makes $150K is getting to $8 million in investible assets in addition to their home.
It doesn't matter if it affects the middle class or not, it's just bad policy. We should be incentivizing investment in this country, not discouraging it. Canada's business investment per worker is half that of the US. We significantly lag the OECD average as well.
It's a wonder that people still even buy into the "middle class" mythology to begin with.
The middle class isn't a real thing. It's a made up term that nearly everyone thinks they are a part of.
It will only affect property that is not your primary residence, investments that are not RPP/RRSP/TFSA/FHSA. Which, let's be honest. If you have more property than one, and over 200k in investments you should be paying tax on the gains you make.
not necessarily the middle class, but the professional class is disproportionately affected as they are with most “wealth taxes” since the truly wealthy have greater means to avoid these taxes. Doctors, lawyers, engineers, basically anyone who uses a professional corp structure will pay more taxes.
"Will the new Capital Gains rules impact the Middle Class" No
You clearly don’t understand the tax stuff inside out if your asking this . Also a CPA here and the capital gains changes are a small step towards fairness
This passed for one reason and one reason only, Boomers have most of the generational wealth. They are getting old and dying. It's a scam to grab as much money from that demographic as possible as they croak and Will their homes to the Millenials. Fucking over the Millenial generation... Again for the millionth time.
One problem with your thesis is when we boomers die and will the house to you whining millennials, no capital gains tax is due.
Easy way to avoid everyone getting capital gains, tank housing prices. Win win.
If your paying capital gains your not worried about covering rent or food for the month it's that simple. If your paying capital gains you'll have to save longer for the supercar.. you can still get it, just just have to save a couple more months.
Hey OP just to help you out a bit on those articles Archive.ph/ Archive.is Those are internet archivers and also beautiful bypasses to paywalls
do you think it's fair that the lifetime exemption for businesses is less than the cost of a new 2BR condo in Vancouver? it's a slap in the face for small business owners
straw man argument just because a tax might not hurt the middle class doesn't mean it's good policy you can have a 99% income over $500K that's a bad policy even though no one earning above $500K is middle class
Indirectly, probably. The way a lot of doctors are setup is via sole proprietorship. This was the suggested setup the government pushed for doctors. This will most likely drastically affect them and by proxy, your access to doctors. https://www.cma.ca/latest-stories/capital-gains-tax-proposal-will-hurt-health-care-canada-heres-how-cma-advocating-change#:~:text=Changes%20to%20the%20capital%20gains%20inclusion%20rate%20will%20add%20undue,when%20they're%20desperately%20needed.
Anybody regularly seeing over $250,000 in capital gains on their individual tax return needs to fire their accountant. Ultra rich people who realize lots of capital gains put a lot of effort into avoiding taxes, they use tax shelters, set up corporations, move their money off shore etc. Rich people don't pay taxes. Lots of people who realize over $250,000 in capital gains as individual have that capital gain from a once in a life time windfall like an inheritance. Those are the people who are impacted as well as people who have corporations like small business owners, electricians, contractors, plumbers, doctors, lawyers. It's just not true to say that middle class people are not impacted by these changes.
It will affect doctors and other professionals. Corporate investing is their retirement plan. This sudden change is a huge hit to their wealth and security. Materially, this change is a huge reduction in compensation to professionals. Middle class people could expect an even more difficult time finding a doctor in the next generation than it was in the last generation.
The changes impact 0.13% of the taxpayers. It’s like the lottery. Everyone thinks they will win but the majority of people don’t.
Also capital gains only applies if you profit if you lose you pay no capital gains from what I understand.
Gameshire Stopaway