Corporate capital gains concentrate in two sectors with no job growth, raising concerns over tax fairness
The majority of corporate capital gains in Canada over the past five years were concentrated in two sectors—miscellaneous intermediation, including venture capital companies and investment banks, and real estate.
This is according to a study by the Centre for Future Work and l’Institut de recherche et d’informations socioéconomiques, as reported by BNN Bloomberg.
Despite capturing 52.6 percent of all corporate capital gains from 2018 to 2022, these sectors did not contribute to job growth, shedding nearly 5,000 jobs during that period.
The report, authored by economist Jim Stanford, highlights that favourable tax treatment of capital gains disproportionately benefits the wealthy without boosting the economy.
The findings come amid a contentious debate over the Liberal government's decision to increase the inclusion rate on capital gains, which are profits earned from the sale of assets.
Business groups have opposed the tax increase, arguing it would negatively impact innovation and business investment by imposing a higher tax burden on all Canadians.
However, Stanford’s analysis shows that the sectors responsible for most corporate capital gains have not contributed to job creation, undermining claims that lower capital gains taxes stimulate economic growth.
The analysis also reveals no historical correlation between capital gains taxes and business investment in machinery, equipment, and intellectual property. Instead, it suggests that wealthier Canadians disproportionately benefit from the preferential tax treatment of capital gains.
In 2021, Canadians with an annual income of more than $250,000, who represent 1.5 percent of tax filers, earned 61 percent of individual capital gains.
Prime Minister Justin Trudeau has defended the tax increase, arguing that it promotes fairness by reducing the tax advantage enjoyed by wealthy individuals with significant investment portfolios.
The Liberal government also contends that the additional revenue from the tax increase will support priorities important to young Canadians, such as housing.
In contrast, Conservative Leader Pierre Poilievre has criticized the tax hike as a “job-killing” measure, arguing that it will hurt businesses and lead to fewer jobs.
While Stanford’s report does not specifically address the government’s recent changes, it indicates that wealthier Canadians have been the primary beneficiaries of the favourable tax treatment of capital gains, furthering economic inequality.
