What you need to know about Poilievre’s capital gains proposal

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It is difficult for political parties to find a commitment to a breakthrough campaign in elections masked by the global economic crisis, but the proposed capital gains tax extension proposed by conservative leader Pierre Poilievre has pierced many ears. Here, the financial position looks at the policy, how it will function and whether it may be an economic “rocket fuel” Poilievre argues.

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What is the proposal?

Currently, capital gains are taxed at 50%, which means half of any profit earned from selling stocks, bonds, real estate or other investments is taxable.

Under the Tory proposed first-time reinvestment tax cut policy, individuals or companies selling assets can tax their capital gains if they reinvest their earnings in Canada. Examples provided by the Conservative Party include Canadian businesses, stocks, farms, home construction, technology and manufacturing.

Tax extensions will apply to reinvestment between July 1, 2025 and December 31, 2026. The Conservatives said in a press release that if the policy produces a “significant economic prosperity”, they will make it permanent.

The Conservative Party notes that the current lifetime capital gains exemption restricts the sale of small commercial company stocks, agricultural property and fishing properties will not change, so small business owners and farmers are still eligible for new proposed tax breaks and existing exemptions.

How will it work and how much will it cost?

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“Canadians accumulate taxes only when they make money or take money from Canada,” Poilievre said in a video explaining the policy.

Examples of eligible tax breaks offered by the Conservative Party include deli owners who sell their business and reinvest their proceeds in a new Canadian company; a manufacturing business reinvestment in a new Canadian factory, or a rental company that sells buildings and reinvests funds to build more apartment buildings.

The Conservatives believe that short-term losses in government revenue will be offset by job creation and economic growth. They also said Canadian companies investing abroad will have a “strong motivation” to reinvest their funds within Canada. In the video, Poilievre claims that when investors cash out and pay capital gains tax on all investment gains, the government will still get its share, but larger, larger”.

Poilievre said in a March 30 press conference that the investment credit would cost the government $10.5 billion in two fiscal years: $5 billion in 2025-26 and $5.5 billion in 2026-27.

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Who will benefit from the proposal?

The policy will benefit people from holding assets and individuals and businesses who are reluctant to sell them due to concerns about tax blows. In particular, companies will profit from the extension by unlocking frozen capital and redeploying their investment in their businesses, such as purchasing land to buy larger plants or new machinery or technology to increase their capacity.

Real estate developers will be motivated to start new projects and may prompt companies or individuals investing abroad to transfer their capital back to the country.

The broader economy also has potential upside potential as it may stimulate investment and unlock other dormant capital, or help eliminate what is known in behavioral economics as a “capital gain lock-in effect.”

Although the initial 18-month window could be a “game changer” for investors, although the initial 18-month window seemed like a gamble, said Stauffer Donmunnd of Queens University.

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What are people talking about?

Although conservatives have not released specific details on how the policy will work or be managed, the responses from business associations and company leaders are basically positive.

Dan Kelly, head of the Canadian Federation of Independent Businesses, said in an article on X that the idea has the potential to really help Canadian businesses big and small. “It’s nice to see that capital gains are an election issue. Looking forward to the details,” he said.

“Capital gains tax is a huge obstacle to the Canadian economy,” Franco Terrazzano, federal director of the Canadian Federation of Taxpayers, said in a statement. “Poilievre’s announcement is an action to encourage more investment, more development, more growth and more growth.”

François Brouard, a professor of accounting and taxation at the Spitt Business School at Carleton University, told the Financial Post that while Canada’s reinvestment is a valuable goal to identify qualified Canadian investments and track paper trails of millions of Canadians, it could be an administrative “nightmare”.

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Broder illustrates an example of stocks in a mutual fund that holds substantial investments in Canada and other countries. “You’re going to need to track every different investment in the initial investment, and you’re going to do that for everyone,” he said.

Drummond noted that the policy will attract high-income investors to a large extent, while higher-income Canadians already have other tax deferral options available.

“If they invest in a tax evacuated vehicle, RRSP or TFSA, they have already received a final extension of capital gains until they have to start taking it out of the RIF,” he said.

•Email: jswitzer@postmedia.com

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