Federal government should reform capital gains taxes to spur economic growth

VANCOUVER—If the federal government wants to spur entrepreneurship and increase economic growth, it should reform capital gains taxes in Canada, finds two new essays published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

“Now more than ever, policymakers in Canada should find ways to unlock the potential of the Canadian economy and increase opportunity and prosperity,” said Douglas Cumming, professor of finance at the Stevens Institute of Technology and author of Capital Gains Should Not Be Taxed Nominally.

When you purchase an asset (e.g. property) and sell it for a higher price, the profit is called a capital gain. In Canada, capital gains are taxed “nominally,” which means the gains are not adjusted for inflation.

As a result, Canadians face inconsistent capital gains tax rates from year to year, and pay less tax in years when inflation is lower and more tax in years when inflation is higher. Higher tax rates discourage entrepreneurship and investment, and reduce economic growth, which means fewer job opportunities and lower wages for workers.

A separate essay, Capital Gains Tax Rollovers in Canada, offers an additional suggestion for reform—that is, allow capital gains tax “rollovers” for an entrepreneur or investor to defer capital gains taxes by reinvesting the proceeds from the sale of one asset into a new similar asset within a specific period of time. The entrepreneur benefits by paying tax at a later date, enabling additional entrepreneurial activities and savings.

In Canada, rollover rules are more restrictive than in other countries including Australia and the United States. Reforming Canada’s rollover rules would have a positive impact on financing available for entrepreneurs and businessowners, spurring economic growth and opportunity.

“If policymakers in Ottawa want to help our economy grow while also addressing our serious productivity problem, they should review Canada’s rollover restrictions on capital gains,” said Jake Fuss, director of fiscal studies at the Fraser Institute.

Media Contact:
Jake Fuss, Director of Fiscal Studies, Fraser Institute

To arrange media interviews or for more information, please contact:
Mark Hasiuk, Fraser Institute
604-688-0221 ext. 517
mark.hasiuk@fraserinstitute.org