Capital-gains tax hike separated from budget bill in calculated move to corner Conservatives, observers say

Open this photo in gallery:

The Liberal government is separating proposed capital-gains tax measures from its budget bill in what some say is a political attempt to force the opposition Conservatives to take a stand on the controversial measure.

Finance Minister Chrystia Freeland sidestepped questions at a press conference Tuesday as to why she had excluded the capital-gains tax changes tabled in the April 16 budget from a motion tabled in Parliament to implement the spending plan.

She said “we are absolutely committed to” the capital-gains measures and said a separate bill would be forthcoming with the measures. When asked if she was forcing the Conservatives to vote on the specific issue, she said “No,” then smiled.

Conservative Leader Pierre Poilievre has said his party, which is polling far ahead of the governing Liberals, would vote against the budget, but hasn’t explicitly addressed the capital-gains tax move, which the government claims would only affect 0.13 per cent of Canadians a year, on the wealthy end of the spectrum.

Drawing the Conservatives out on the capital-gains issue is indeed one of two reasons for the carveout, a government source said. The source highlighted Ms. Freeland’s smile after that question, adding the Conservatives needed to take a position so voters know where the Official Opposition stands. The source added the other reason owed to the changes being technical and complex, and that the government needed time to get the proposal right. The Globe and Mail is not identifying the source because they are not authorized to discuss the matter.

The budget proposed to increase the taxable portion of capital gains to two-thirds from 50 per cent for corporations and trusts, and to make a similar increase for individuals for capital gains of more than $250,000 a year. The new rules are set to come into effect June 25. The government has positioned the move, which it forecasts will generate $19.4-billion in revenue over five years, as part of a “tax fairness” plan in which wealthier people pay more to fund its spending promises.

The budget proposed some mitigating benefits for small-business owners and entrepreneurs, including raising the lifetime capital-gains exemption to $1.25-million from $1.02-million and introducing an incentive allowing qualified founders who own at least 10 per cent of their companies to pay less tax on up to $2-million of lifetime capital gains. The countervailing measures would cost the government an estimated $1.66-billion over five years.

The capital-gains inclusion proposal has become the most contested element of the budget, opposed by technology entrepreneurs and their funders, cottage owners, doctors, several economists and former Liberal finance minister Bill Morneau, among others.

Many see it as a societally divisive measure that isn’t based on sound economic policy; they say it will dampen profits for those selling businesses or converting stock options and disincentivize Canadian startups and their backers at a time when productivity is dropping and the economy is stagnant.

“The government didn’t do its work to understand how this bill would play out” or affect different sectors and constituents, said Council of Canadian Innovators president Benjamin Bergen, who has called for a reversal of the capital-gains measure. Forcing a separate vote “reads like political theatre rather than good public policy.”