Capital gains changes will bring in billions — but less than Ottawa expects: PBO

Contentious changes to how capital gains are taxed in Canada will bring in billions less in revenue for the government than Ottawa was expecting when it tabled the 2024 federal budget, according to the Parliamentary Budget Officer.

The PBO on Thursday tabled a probe of Liberal measures to hike the inclusion rate on capital gains taxes.

The fiscal watchdog expects that, over the five-year planning horizon in the budget, the government will yield an extra $17.4 billion in tax revenues thanks to the changes.

That’s below the $19.4 billion in revenues the Liberals had forecast in the budget in April.

The changes, which went into effect June 25, saw theinclusion rate on capital gains rise to two-thirds up from one-half for individuals making more than $250,000 annually, as well as for all gains realized by corporations and trusts.

Capital gains are realized from the sale of an asset like a stock or property. Canadians’ primary residences remain exempt from capital gains taxes when sold, but secondary properties like cottages are included.

The changes to capital gains taxes were billed as necessary to pay for spending elsewhere in the 2024 budget while bringing in enough revenue to maintain the Liberals’ fiscal anchors.

The so-called capital gains advantage has been cited as a way for wealthy Canadians to avoid paying as much on their income taxes. The Liberals said in the budget that only 0.13 per cent of Canadians earn more than $250,000 in capital gains each year.

But the changes were criticized by some business leaders and professional groups, arguing the changes would discourage business investment and affect tax planning strategies for groups like doctors.

Finance Minister and Deputy Prime Minister Chrystia Freeland defended