How to Avoid or Minimize Extra Tax From New Higher Capital Gains Tax

You may have heard that we just had a new budget here in Canada, and increased the taxes on capital gains. 

Canadians with a rental property, cottage or investments and their tax advisors are scrambling to figure out what to do before the deadline of June 25, 2024.

Here are the questions we’ll cover:

  • What is the new higher capital gains tax?
  • Who is affected?
  • Why is it mainly a real estate tax?
  • How to avoid or minimize the higher capital gains tax.
  • Is investing inside your corporation still worthwhile?
  • Will the higher exemption for small business help?
  • Are rental properties or cottages still profitable?
  • Why are only 50% or 67% of capital gains taxed, instead of all gains?
  • 3 nasty aspects of the new tax.
  • Why do they say only 0.13% of Canadians are affected?
  • Will this hurt our economy?

What is the new higher capital gains tax?

It’s in the 2024 budget. 

It increased the inclusion rate. 

Now, being included usually sounds like a good thing. 

In this case, it’s not. 

Now 67 percent of capital gains are going to be taxed up from 50 percent. 

For individuals, there’s an exemption of $250,000 a year that are still taxed at 50% and it’s gains above that will be at 67%.

For corporations, all capital gains will be included at 67%. 

This is effective June 25, 2024. 

We only got two months’ notice for this thing, which is not much. 

And it’s a big increase. It gets a 34% increase from 50% to 67%. So it’s not insignificant here. 

Who is affected?

I’ve seen the full finances of thousands of people and I can just tell you who’s actually going to pay for this kind of thing. We do their tax returns as well. 

This will affect about 25% of Canadians. And it will affect mostly middle class Canadians.

First of all, the biggest group are going to be people that own rental properties. 

From what I can gather, that’s  about 11 percent of Canadians, so about 4.4 million people. 

People who have a rental property at some point will sell it and have a big capital gain and they’ll get affected. 

Canadians who own cottages (10+% of 4 million)

About 10 percent of Canadians have a cottage that would be affected by this, so about 4 million people. 

Deaths with larger non-registered investments (2% or $800,000 (?))

Another one is deaths. You may be able to avoid this until you die, but then it’s declared that everything is sold on that day.

So it could be a rental property or it could be other investments. Probably another 2 percent of people are going to get nailed on their estate. 

That’s about 800,000. 

Small businesses with investments (1% of 400,000 (?))

Next, small businesses with investments. 

I believe only a third or less of small businesses have investments. That’s what the tax advisors, accounts and we recommend. Let’s say that 1 percent do that, and that’s about 400,000. 

Professionals with corporations

There’s professionals with corporations, now the biggest group here are doctors, but there’s all kinds of different professionals, you know, accountants and, usually not lawyers, but other kinds of professionals that have corporations. 

That’s about, let’s say, 1 percent of people. So about 400,000.

Employees with stock options

Now, the biggest ones here are IT. 

I see that quite a bit in IT, so it could be people that work for Microsoft and Amazon, the big companies or even a lot of smaller IT companies give them stock options, and those people are going to get nailed on it too. 

And this would include people working on AI now. There’s a lot of them that are going to be affected. 

So I think that’s about 2 percent of Canadians, let’s say about 800,000. 

People leaving Canada

These numbers are hard to find. 

Anecdotally, it is higher than when “brain drain” was regularly covered in the news from 2000-2010.

I’m estimating about 3%, I’d say 1.2 million people. 

From 2000 to 2010, there were lots of news articles about the brain drain, with a ton of smart people leaving Canada. 

And it was in the news constantly, but now, it’s not mentioned anymore, so it’s hard to get any numbers on that. But anecdotally, I believe it’s more now than it was back then. But it’s really hard to say. 

TOTAL: 25% of Canadians will be affected 

Now these numbers, it’s hard to get accurate numbers, but I believe 25 percent of Canadians will get affected somewhere over their life, which is about 11 million people.

Mainly a real estate tax.

Now, as you see, it’s mainly a real estate tax. 

The biggest two categories who are going to get nailed are rental properties and cottages.   

The thing is you can’t sell a property bit by bit.

You must sell it as one big gain. 

Here’s an example of a middle class person who may be affected:  

I call him Vinny the tradesperson. 

He works in construction all his life and makes $50,000 a year. 

When he was young, he moved to a new house. 

He kept the old house as a rental property and kept it for 40 years. 

Now he’s going to sell it. 

He has a million dollar profit. 

The year he sells it, is the year he’s going to get hit by this higher capital gains tax. 

So that’s the year he’s part of the wealthy in Canada. 

He’s considered one of the top one percent. 

And he’s the people that we’re taxing. And that’s the norm. That’s the bulk of them. 

It’s mostly middle class property owners that are mainly going to be taxed by this.

Equity (stock market) portfolios

What about equity stock market portfolios? 

We call them equities because you buy equity in the company. So, what about them?

They’re mostly not going to be affected because, first of all, a lot of that’s in registered accounts like RRSPs and TFSAs, so it’s not affected anyway. 

There’s a tendency to hold a lot of those for years, especially if people have managed portfolios, like mutual funds or ETFs. If you’ve got a manager or an index, you tend to hold those for many years. So you don’t trigger a lot in capital gains. 

Self-made Dividends

I’ve talked a lot about self-made dividends. 

It’s what we recommend for our clients. 

What happens is when you’ve got investments, you mostly just invest for growth, and it just grows over the years. 

And then when you retire, you’re just taking cash flow based on what you need for your lifestyle, but you’re selling it bit by bit, so it’s not the full amount that you take out that’s taxable. 

It’s only the gain portion of it, and now it’s to only two thirds of that portion. 

So that’s why self-made dividends are far more tax efficient than ordinary dividends or other kinds of income. And you’re doing it bit by bit. So that’s why you’re really not affected.

Client with $7 million portfolio & a rental

A client with a $7 million portfolio and a rental property that is not extravagant, it’s semi-detached. They’re going to get nailed on the rental property, but not on the $7 million stock market portfolio. 

Clients with $10+ million living on $500,000/year

We have other clients with more than $10 million investments, retired living on $500,000 a year. 

Now this would be fairly wealthy, however you would define it, right? 

$10-15 million of investments, $500,000 a year of income. 

But what happens is, part of that income is pensions and RRSPs and stuff. 

And then you’re taking the self-made dividends. And the amount that you get is, it’s only the gain portion. 

If you take $500,000 out, quite a bit of that was what you originally put in. Let’s say half of it. And the other half is the gain. 

That’s maybe $250,000 of gains, but you split it between spouses. So they have a little over $100,000 each. 

In essence that’s $100-200,000 taxable gains each.

Even people with $10 or $15 million of investments and $500,000 a year of income in most years is nowhere close to the $250,000 annual exemption. So they’re probably not going to be affected. 

It’s just Vinny, the tradesperson that’s going to get nailed on this. 

Many small business owners invest inside their corporations instead of RRSP or TFSA. 

They will be taxed more and do not have $250,000 allowed. Largest group may be doctors, say half of doctors or about 50,000 people.

How do we avoid this higher capital gains tax entirely, or at least minimize it? 

There are two basic ways to avoid it. 

  1. Sell before June 25th, and then you just get the 50% rate of today. 
  2. Do nothing and just keep holding your property for at least a few years. If you don’t sell, you don’t pay this tax. It’s only when you sell that you pay. 

Long term investors should probably just do nothing and just keep going as you are. Don’t sell too much and hold your investments maybe longer than you would otherwise. 

There’s a good chance this is reversed in two years by a government that’s actually trying to grow the economy. So it’s probably going to be gone anyway. 

Which method is best?

Out of these two methods: sell before June 25th or just keep holding & do nothing, which is best?

What it comes down to is, if you sell now, you pay 50 percent tax. 

And if you sell later on, you’d pay 67 percent tax in the future.

Would you rather pay 50 percent today or 67 in the future? 

And the answer is, it depends on how far in the future that is. 

The way to look at it is, how long would it take the investment that you have in question to grow from 50 bucks to 67 bucks? And that’s what gives you your answer. 

Real estate average 6%/year = 5 years

Real estate typically grows five or 6 percent a year. 

Let’s say it would take about five years to grow that amount. 

Stocks average 10%/year = 3.5 years

Stocks, let’s say the average 10 percent a year, it’s about three and a half years. 

If you expect to sell within 5 years for rental or cottage, or within 3.5 years for stocks, then try to sell now before June 25. Otherwise, you save money by holding longer.

So the answer is: if you would sell this investment anyway in three years or less with stocks or five years or less for real estate, then it’s better to try to sell it now if you can. 

If you’re planning to hold it longer term, then do nothing and just hold it longer term. 

Best advice is to hold your long term investments, in fact, consider holding them even longer than you were thinking otherwise. 

Call it the “lock-in effect”, because you can avoid this entirely by just not selling anything.

Especially if this gets reversed in two or three years. 

Stock market investments

You should sell the ones that you would sell anyway in the next three years. They may be worth selling now. Although if it’s personal, you could stay under the $250,000, so you don’t have to really worry anyway if you’re under that amount. 

Real estate investments

It may be more worthwhile to sell, however it also might be difficult if it’s a rental property. You may have tenants. You need to get the tenant to move out and get it ready and sell it and have possession date before June 25th. That’s unlikely to happen. 

Is investing inside the corporation still worthwhile? 

This has been something that’s been commonly done, and it’s something that most accountants recommend, and we recommend as well. 

For small business people, professionals, doctors, and IT people, who have a small business – what you do is you make money in the business, and then you only take out what you need for your lifestyle and you invest inside the business.

This is instead of RRSPs or TFSAs or anything, this is your main retirement portfolio, and it’s now going to be taxed more highly. 

That’s what doctors are all worried about. 

Probably half or more of doctors are doing this and now we’re just attacking their retirement portfolio. 

But is it still worthwhile? 

And the answer is yes. 

Because there’s a tax deferral. 

It’s not a tax savings, but there’s a tax deferral that’s pretty big. 

Here’s how it works. 

You make money inside your company, and you pay 12 percent at the small business tax rate on the first $500,000. 

You pay 12 percent tax on it, and then, when you take it out at whatever point you’re going to pay either dividend or salary on it.

Tax is a bit complicated, but let’s say you’re going to pay about 31 percent more tax at that point for a total of 43%. 

If you’re just getting a salary. you pay 43 percent tax, but now it’s because it’s in a company, you pay that 12 percent tax and the 31 percent later when you take it out.

On your retirement portfolio, you pay 12 percent now. 

The other 31 percent is money that still stays invested, and you’re going to pay that tax later on.

It’s kind of like the RRSP tax deferral except somewhat different, but it’s big enough that even with a higher capital gains rate, it’s still worth doing for most people.

Investing inside a corporation is still worthwhile and dividends are still better than salary, because you avoid paying into CPP. Someone who is self-employed has to pay double and it’s a pretty low rate of return, like 2 percent a year. 

So dividends are still better than salary.

The one change is, it’s now worthwhile to maximize your RRSP. 

If you pay yourself dividends, you don’t get any new RRSP room anyway. But we’ve got clients that have a small business. They’ll have RRSP from when they were an employee in the past. They still have RRSP room. 

Up until now, we’ve been saying, don’t worry about it, just invest inside your corporation. That’s what you should do. 

But now because of this rule, and it’s taxed a bit more highly there, it makes it worthwhile. 

Pay yourself an extra dividend over and above what you’d normally do. 

Put that money into an RRSP. 

Your RRSP deduction is going to be a net savings. The RRSP deduction saves more than the tax on that dividend. 

You’re going to pay more tax down the road because the RRSP is fully taxed when you eventually take it out.

But you don’t pay full tax on the investments inside the corporation,  but because it’s now 67 percent instead of 50 percent, that much makes the difference that we think it’s now worthwhile to maximize your RRSP when it wasn’t before. 

Will the higher exemption for small business help?

There is a capital gains exemption on the sale of small business shares.

It was increased from just over a million to $1.25 million. 

The idea was that we’re trying to ‘attack the rich’, but not the small businesses that are the lifeblood of our economy. 

So is this going to help? 

The truth is, I don’t think so, because I don’t actually think this is going to have much of an effect. The reason is because it’s actually rarely used. 

That’s probably surprising for you, but most small businesses are family-owned, the husband and wife own it, and so when they sell it, they can make $1.25 million tax-free each. Combined it’s two and a half million tax-free they can get. 

Sounds awesome, right? 

But the truth is it’s actually rarely used. 

And the reason is when you sell a business, there’s two ways to sell. 

You can sell the assets or you can sell the shares. 

If you sell the assets, that’s better for the buyer. 

If you sell the shares, it’s better for the seller because you get this $1.25 million exemption. 

If the buyer buys the assets, they can claim it as goodwill, they can claim depreciation on it, so they deduct it over time. 

If they buy the shares, they get no deduction at all. 

So, if you sell the shares of your business, you’re going to have to sell the business for somewhat less because it’s less favorable for the buyer.

How do you pay the least tax total between the buyer and seller? 

What is the best overall offer for both?

In most cases you pay less total tax by buying the assets and not the shares. 

So in most cases, this tax-free gain is not used anyway. 

Are rental properties or cottages still profitable? 

Most of the growth of properties is in inflation, and yet now two-thirds of it (67 percent) is going to be taxed. 


Real estate in the last while has grown 6 percent a year, but inflation’s been three and a half, so more than half the growth is taxable, and yet 67 percent of the growth, of all the growth, is taxed. 

So more than half the growth is inflation. And yet, now two-thirds of it is going to be taxed. 

Let’s look at the numbers. 

Let’s say you own a property for 25 years, it quadruples in value, so you bought it for $250,000, it’s now worth a million. That’s 6 percent growth, that’s kind of what 6 percent would do. 

Inflation’s averaged 3.5%, so you need $600,000 today to buy what the $250,000 bought back then. 

You gained $750,000, but $350,000 was just inflation. 

Now when you sell, here’s how much tax you pay. 

You made a capital gain of $750,000. It’s 67 percent inclusion and you pay 53.5 percent tax on it, so it’s $270,000 tax. 

Overall you grew $750,000 in value, but $350,000 of that was just inflation, so it wasn’t a gain in wealth and $270,000 is tax. 

You’re actually only up $130,000. That’s 1.7 percent per year after tax. 

That’s a pretty low return, but yes, it’s still profitable.

It’s not a very big return, especially if it’s a lot of work to manage a real rental property. 

Today you have a 50 percent inclusion. You would pay $200,000 tax instead of $270,000, then the overall rate of return was 2.4 percent after tax. 

It’s 30 percent lower net profit from this. 

It’s pretty significant, but it’s still profitable overall if you don’t mind the work. 

The overall profit on rental property is a bit more than that because generally what I see is the net Cash rent, paying expenses, is generally a break-even in most cases.

There are cases, like condos in Toronto, people buy them as rental properties, but they’re bad. Because most of them are paying $500 a month out of pocket. They’re negative cash flow.

But generally they’re about even. You’re not really making anything on cash flow until your mortgage gets much smaller. 

They say the tenant is paying your mortgage, so it does pay off over time. 

In this example, you bought the property for $250,000 originally. 

You took a $200,000 mortgage, put $50,000 down, so that’s paid off. 

And that adds about 2.4 percent per year to your return. 

So you made 1.7 percent on the growth, 2.4 percent on paying off the mortgage. 

You made about 4.1 percent after tax by owning your property. 

That’s a lot less than the stock market. 

Still profitable, but now we have this tax. 

It’s mainly a tax on real estate and it’s dragged this down to 4.1%. 

Real estate already has a much lower return than the stock market. 

I have a chart here from 1975, the average house price in Toronto. 

This is real estate in Toronto, which has had fairly good growth. 

$75,000 then, now it’s just over a million. 

But that same $75,000, if it was in the stock market, you’d have between $4-8 million, depending on if you invested globally or in Canada or in the US. 

So real estate is much lower growth anyway, and now it’s got this tax mainly on real estate. 

Why are only 50% or 67% of capital gains taxed anyway? Why not tax all gains? 

Other income is fully taxed, but interest and dividends are not. 

And the reason is it’s encouraging investment. 

Let’s look at the history of it. There was no capital gains tax before 1972. It was brought in ’72, with the inclusion rate at 50%. In ’88, it was increased to 67%.

History  of inclusion rate:

Before 1972                  0%

1972-1988                   50%

1988-1989                   67%  Part of comprehensive tax changes.

1990-2000                   75%

2001-2024                   50%  Reduced to boost economy

That was actually a plan put in place by Brian Mulroney. 

It was part of comprehensive tax changes, which had some other reductions for wealthier people. So they raised that to offset, and then it was brought up to 75% in 1990 until 2000. 

Then in 2001, it was brought back down to 50%. It was actually the Liberal government that did it because they realized that having this higher tax was dragging down the economy. 

We had the tech boom going on at that time, and all the stuff was happening in the States, and we were missing out on all the growth. 

So we could see how much it was affecting our economy, and we could see that the higher inclusion rate didn’t work, so the government brought it back down to 50 percent, and it’s been there ever since, up until now. 

Now, the reason we only tax part of it is because it encourages investment. 

Lots of studies have shown this. When you drag down investment, then it drags down the whole economy. 

Economic growth brings in more tax overall, and I suspect that the tax on the overall growth is going to be larger than any tax they gain from this particular tax. 

Starting a business and running a business is hard. It’s a ton of work. It’s difficult. It’s risky.Most people are just not cut out for doing it. The stat is, only 5% do well.

95% of small businesses go bankrupt in the first five years, so it’s really hard. 

The government is trying to encourage people to do it because that’s where all the job growth is coming from. Investment creates growth.

Now, the other reason that it’s only partly taxed is because much of the growth is capital gains. So it’s not really an increase in wealth. 

If more than half of your growth is inflation, like on real estate, then you have to pay basically all of that in tax. 

It really wipes out the advantage of having these investments in the first place. 

There are three nasty aspects of this new tax that really bug me:

1/ Retroactive tax

  • It taxes capital gains in the past.
  • Bought cottage or rental property decades ago. 67% of past gains are taxed.
  • There should be an election to claim gains until now.
  • Like the election when the $100,000 lifetime capital gains exemption was eliminated.

First one is that it’s a retroactive tax. So this is shocking. It taxes gains in the past. 

If you got a cottage or rental property 40 years ago and you sell it next year, you pay the 67 percent tax on all the 40 years of growth, not just from here forward. It’s all tax on investments that you own today from when you bought them. 

What they should have done to be fair. It should only be effective from here on in and what they should have is an election that you could say, okay, I’m going to claim the gains up till now at 50 percent give me that option without selling it. Just let me claim the gains at 50% and I’ll claim the rest at 67%. I’ll pay the higher tax from now on later. And at the end of that, actually get a one-time tax hit from this.

Or when you eventually sell, you pay tax at 50% up until June 25, 2024 and 67% after that. That would allow you to still pay the tax when you eventually sell, with the higher tax only from now on.

There’s precedent for this election because back in the 90s, there used to be a $100,000 lifetime capital gains exemption. 

Every person could make up $100,000 capital gains in their life, no tax. When they got rid of that, they allowed you to claim capital gains up to then, which were tax-free. So you just filed an election to show the fair market value.And that would be fair to do that here. 

2/ Trying to trigger large tax in 2 months

  • Expecting $5 billion tax this year vs. $1.4 billion/year in future years.
  • It likely will not trigger much tax, since it is mostly on real estate.
  • 2 months is not enough time to sell a property.
  • Principles of fair tax: Should be predictable. (Adam Smith)
  • Giving people 2 months to talk with their advisors & make changes.
  • This follows Underused Housing Tax and trust debacles recently.
  • Trying to divide Canadians: Rich vs. poor.

The other thing that is really kind of nasty is that you only have two months to do this and it’s not enough time for people to plan it. 

Accountants are super busy and it’s creating all this panic. And now, and it’s disingenuous because they’re expecting to get $5 billion of tax this year and only $1.4 billion per year after this by pressuring people to sell in a panic in 2 months and pay tons of tax.

It’s not very much tax they’re going to get from this, except that they expect a whole bunch of people will panic and sell quickly. And I don’t think they’re going to because, remember, it’s mostly a tax on real estate, and you can’t really sell your property in two months. 

Now, one of the principles of fair tax is from the original book, Adam Smith, Wealth of Nations, was that tax should be predictable, that people should know what they are, be able to plan for it, know when to pay it. Now all these doctors or people that have small businesses that have been investing in a corporation and all of a sudden, we’re taxing your retirement portfolio much more highly and only two months notice. 

3/ Attack on Accountants

  • Accountants are upset.
  • Imply accountants get around the rules. They just know the rules.
  • Income tax is way too complex! This adds complexity.

It’s also causing a problem for accountants. Accountants were in the middle of just doing personal taxes and then business taxes, which are due June 15th. 

So they’re busy as anything and now everyone’s phoning them saying I need advice and what should I do here? 

It will be two months creating this big panic.

We already had a couple of big debacles that really affected accountants. We had the underused housing tax and the trust debacles just recently. In both cases people had to file new types of returns that they didn’t know before and most people didn’t know and accountants had to do it all for them. There’s no more tax involved, but there’s a big penalty if you don’t file. 

It’s just so the government can get information.

The trust one was a disaster. People were panicking and hardly anybody knew about the rules and then at the last minute on the deadline they said – ‘Don’t worry about filing the extra return this year’.

What about next year? I don’t know about next year. I’ll let you know when we get to next year. 

So those have been real disasters and a ton of work for accountants, and a lot of accountants did these things and they can’t even charge their client because it turns out, “Oh, we didn’t need 

to do it.” 

With all that’s been going on, why does the government do this? 

Why do they only give people two months? 

My take

I think what it is, it’s a political ploy. 

It’s hard to understand why they would do it this way any other way. 

I think what it’s trying to do is, it’s a wedge issue trying to divide Canadians, rich versus poor. 

Only giving two months will intentionally piss people off, and then create this animosity.

And I think that’s what they’re trying to do. It really bugs me that it’s done this way. 

Retroactive tax with two months notice.

The third thing that bugs me is, it’s an attack on accountants. 

The budget actually said, rich people have accountants and they can avoid taxes. 

And it makes it sound like accountants are doing something nefarious, and they’re not. They’re just telling people what they can do.

I know the accounting associations and most accountants are really offended by the speech, and the way it was done. 

The issue is, income tax is way too complex. 

Many people can afford accountants, and they happen to know the rules, which are complex. So why penalize the people who know the rules?

Why do they say only 0.13% of Canadians are affected?

I showed you earlier on in the blog that I believe it’s more like 25 percent of Canadians being affected. 

So, why do they say 0.13? 

I think both of those numbers are probably true at the same time. 

First of all, they use 2022 as a year, and that’s an issue. As a year, there’s a lot less capital gains than normal. It was a big down year for stocks and real estate, so there would have been a lot less capital gains than normal anyway. 

Most years it wouldn’t be 0.13 percent, it’d be 1-2 percent or something. That’s how many people are affected in one year versus 25 percent are affected sometime in their life. 

Now, the reason this is hard to understand is because people tend to think, there is a group of permanently wealthy and a group of permanently poor. But that’s not actually what happens. 

Remember the main people attacked by this is Vinny the tradesperson, right? 

He’s got a rental property. So he sells his property. He’s never made much money. He’s never had any capital gains. But then one year he sells his property, makes a million capital gain. He’s part of the rich. He’s part of the 1 percent, right? 

He pays the capital gains tax that year. He’s mainly the one that’s attacked. In any other year, he never pays it.

But he’s one of the people that’s affected at some point during their life and that’s what actually happens. 

“Rich” & “poor”

To understand this more, you need to understand the difference between the rich and the poor because there’s a lot of talk about rich versus poor. 

And you know what? 

I think it’s very poorly understood how it actually happens. 

People think there are these rich people who are always rich and these poor people can’t get by. 

And yes, there’s a certain number of those, but believe it or not, those are the minority. 

For the most part, I’ve seen from experience, and there’s lots of studies that show this, the rich and the poor are the same people in different stages of their life. 

The biggest groups of the poor, the 20 percent lowest income. The biggest groups are students and seniors. 

When you’re a student, you hardly make any money, you are one of the poor. Then you get out of school, you get your first job. It’s a starter job, so you’re now in the second 20 percent group, right? 

And over the years, your income goes up as you get more experience, and you move to the higher levels. 

Most Canadians save hardly anything. Or not nearly enough. When they retire, they’re back in the poor group again. 

That’s what generally happens. 

So it’s the same people that are the rich and the poor. 

The high income and the low income are usually the same people. 

Here are some stats:

  • 75% of top 40% were in lowest 20% when younger
  • 88% of top 1% are there only 1-2 years

75 percent of the top 40, so the top 40 percent of income, 3 quarters of them were in the lowest 

20 percent when they were younger. 

That means the bulk of the wealthy people with the above average income used to be the poorest people.

Another stat, 88 percent of the top 1 percent are there only one or two years, like Vinny, the tradesperson. That’s typical. 

So the top 1 percent aren’t these billionaires. There are some, but hardly any of them. There’s the rich people that are rich all the time, but it’s mostly not them. 

Most of the “rich” people getting affected by this tax are the people that are only rich for one or two years. 

They have mostly average years. They have one big gain, and that’s what most of the rich are.

I got this from a great book, Economic Facts and Fallacies by Thomas Sowell. 

I’ve also read a few other books on it, but I highly recommend this one. 

Will this hurt our economy? 

I think so. 

Here’s how I kind of see it. 

First of all, the tax revenue will likely be much lower than the 19 billion that they expected.. 

That’s because it doesn’t take into account what people are going to do. 

The 19 billion assumes that everybody just keeps doing what they’re doing. 

But when you change the rate, people look at it and think, “Oh, well, maybe I won’t buy that rental property, or maybe I’m just going to hold. I was going to sell, but you know, I’m just going to hold it long”.

People do things differently.

And so it’s going to be different from what the government expects. 

I think the government knows that. 

I think it’s just politics. 

I don’t think 19 billion is a real number. I think they just had to put a number in. 

The reason is 40 or 50 billion of new spending, and it looks dumb to spend all this, not getting any money in, so they’ve announced something. 

They’re probably not going to bring in much revenue, in fact, it will probably be a negative revenue total with all things affected. 

It’s a political wedge issue that may help get some votes. 

Right now the biggest issue today in the economy is housing and affordability. 

And that’s been all over the news. 

We have talked to people in their 20s that want to buy a house, and it’s really impossible for most of them. It’s very difficult. 

How do you get the down payment? How do you qualify for the mortgage? 

There’s such a shortage of real estate, and this is just going to make it worse. 

Remember this is a tax mainly on real estate and what it’s going to create is the “lock-in effect”. 

People that have rental properties that before were thinking I’d sell it, so other people could buy it now. Now they are thinking, well if I sell it, it’s going to be a 67 percent tax, so I’ll just hold it.

There’s going to be fewer houses to buy.

I think the five billion that they expected, the one-time hit tax hit from year one from people panicking. I don’t think it’s going to happen either because again, it’s mostly real estate.

You can’t really sell your property in that 2-month period of time.

I think the overall tax revenue that the government will get is going to be lower. 

I think they’ll get some tax from this higher capital gains, but it will be lower in all other areas of the economy, slowing down that will more than offset that in tax revenue. 

It’s taxing all the people that grow the economy most. 

So it’s an attack on doctors and other professionals. We already have a shortage of doctors. 

And now we’re taking their retirement portfolios, and if doctors go to the States, they get two or three times the income they make here.

It’s not that hard to lose doctors.

Another one is IT professionals. The budget is actually trying to promote AI. They got special subsidies for AI, and that’s where a lot of the action is now. However, they’re the ones that have small businesses, or they’re the ones that are getting stock options that are going to get nailed by this increase in tax.

They’re specifically nailing the highest growth areas. 

It’s also an attack on small businesses. Small businesses are the main driver of the economy and of jobs. 

What most jobs are from, more than 95 percent of all businesses are under a hundred people, which are small businesses. This is where most jobs are.

So when you’re attacking those people, whatever you tax, you get fewer jobs. 

The large businesses and the multinationals. Because there’s no exemption, they’re all also going to be taxed at this higher rate. And so these big businesses may think we’re not going to buy a Canadian company, we’ll just buy a US company instead. 

It’s very easy for them to be able to do that and also to move their executives from these multinational companies out of Canada. They already have operations in Canada and the States, so it’s not hard to move their executives who are getting stock options over to another country.

We may lose a bunch of these high value employees.

The question is, how many professionals and employers will leave Canada, and are we going to lose more tax than what this tax gains us? 

Here are a couple stats. 

The top 1 percent today pay 23 percent of income tax.That means almost a quarter is paid by 1 percent of people. 

And the top 10% of income earners pay 54 percent of income. That’s more than half paid by these people. 

So how many people are we going to lose? 

If we lose a small percentage of them, then we already lose more tax than we’re going to gain from this.

Remember this, they only think it’s going to get $1.4 billion after the first year. 

It’s not really much tax that they even expect from this. 

We’ll probably lose more in other places. 

That’s why I think it’s going to get reversed. 

I think we’re going to see, in retrospect, it’s not a good idea.

It’s just a political football thing that maybe looks good, politics wise, but isn’t sound financially. 


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  1. Fire@45 on May 15, 2024 at 6:15 PM

    Hi Ed, If I recall correctly, you mentioned in a past blog, to consider selling investment properties when the equity level reaches 50% or more. Selling might not be as favourable with the announcement of increased capital gains, so for those who still hold rental properties with high equity levels, should we consider just using that equity to purchase diversified stocks or perhaps another rental property rather than selling? I suppose that answer depends on what the current financial environment looks like. I would be curious to know your thoughts.

  2. Ed Rempel on May 13, 2024 at 4:36 PM

    Thanks Biker. I’m glad it was helpful for you.


  3. Biker on May 12, 2024 at 7:56 AM

    Ed, an excellent and timely article. I was looking forward for this one.
    Thank you a lot!

  4. Fire@45 on May 10, 2024 at 8:23 PM

    Ed, I just wanted to raise awareness of another potential way to minimize the new Capital Gain tax if you own real estate with your spouse. Each spouse gets the 250K @ 50%. For example, my wife and I purchased several residential rental properties in 2006 for about 200k, now these townhouses are worth about 800K with no mortgage. That’s a gain of 300K for each spouse (300K x 2 = 600K) and each spouse gets 250K taxed at 50% and 50K taxed at 67%. This could save you a lot of money if you own real estate jointly.

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