TMX+ CEO Advocates for Capital Gains Tax Modification to Spur Economic Growth Toronto Stock Exchange (TMX) Group CEO, John McKenzie, recently urged Finance Minister Chrystia Freeland to modify the current capital gains tax regime in Canada. McKenzie believes that the changes would stimulate economic growth and innovation. Current Capital Gains Tax Landscape Under the current Canadian tax system, capital gains are taxed at a 50% inclusion rate for eligible investments. This means that only half of the capital gain is subject to taxation, with the other half being tax-free. TMX+ Proposal The TMX+ proposed modifications to the capital gains tax regime include: * Reducing the inclusion rate: TMX+ recommends reducing the inclusion rate from 50% to 25%. This would make it more attractive for investors to hold their investments longer, thereby encouraging long-term capital formation. * Exempting investments in early-stage companies: TMX+ suggests exempting capital gains from investments in early-stage companies from taxation. This would provide a much-needed incentive for investment in innovative startups and small businesses. Economic Benefits TMX+ argues that these proposed changes would have several positive economic impacts: * Increased investment: By reducing the capital gains tax burden, investors would be encouraged to invest more in Canadian companies, both large and small. * Boosted innovation: Exempting capital gains from early-stage company investments would create a more supportive environment for startups and encourage risk-taking in the innovation sector. * Enhanced competitiveness: Modifying the capital gains tax regime would make Canada more competitive on the global stage for attracting investment and talent. Response from Finance Minister Finance Minister Freeland has not yet publicly commented on TMX+’s proposal. However, she has previously indicated that she is open to exploring tax changes that support economic growth. The Canadian government is currently conducting a review of the capital gains tax system. The outcome of this review is expected to be released in the coming months. Importance for Investors and Entrepreneurs The proposed changes to the capital gains tax regime have significant implications for investors and entrepreneurs. Reducing the inclusion rate would provide a financial incentive for long-term investing, while exempting capital gains from early-stage company investments would encourage investment in innovative ventures. These changes have the potential to positively impact the Canadian economy and create new opportunities for growth and prosperity.Proposal to Exempt Canadians from Capital Gains Tax Hike on Domestic InvestmentsProposal to Exempt Canadians from Capital Gains Tax Hike on Domestic Investments TMX Group, the operator of the Toronto Stock Exchange, has submitted a proposal to the federal government to exempt Canadian investments in domestic companies from the newly implemented higher capital gains tax inclusion rate that takes effect on June 25. Background The inclusion rate for capital gains on the sale of most assets held for more than a year increased from 50% to 75% for individuals and trusts starting June 25, 2023. This change was announced in the 2023 federal budget as a measure to generate additional revenue. TMX Group’s Proposal TMX Group CEO John McKenzie urged Finance Minister Chrystia Freeland to make an exception for Canadian investments in Canadian companies, arguing that it would encourage investment and boost economic growth. TMX Group proposes that: * Canadian investments in Canadian companies should be eligible for an exemption or a reduction in the amount of capital gains tax payable. * The exemption could follow the guidelines for eligible dividends, where issuing corporations must meet specific criteria to qualify as Canadian. Rationale * McKenzie argues that not all income is equal, and risk-based investments should receive different tax treatment. * The measure would incentivize investment in Canadian companies, job creators, and innovators. * It would provide parity between Canadian and foreign investments, ensuring that Canadian investors are not penalized for investing domestically. Government’s Response * Freeland and her team have indicated that they find the proposal interesting and would like to learn more. * However, no such exemption was included in the implementing legislation passed by the House of Commons this week, which McKenzie described as “highly disappointing.” TMX Group’s Concerns * McKenzie believes the government did not adequately consult with stakeholders before implementing the tax hike. * He argues that the change is particularly harmful in the current economic climate, where investment and productivity are already weak. * McKenzie fears that the government’s deficit may lead to further tax changes in the future, eroding investor confidence..TMX+CEO+urged+Finance+Minister+to+modify+capital+gains+tax. TMX Group CEO John McKenzie urged Finance Minister Chrystia Freeland to modify the capital gains tax in her upcoming budget. In a letter to Freeland dated March 2, McKenzie proposed changes to the capital gains tax that he says would make Canada “more competitive globally for capital formation.” McKenzie argues that the current capital gains tax rate of 50% is too high and discourages investment. He proposed reducing the rate to 25%, which he says would “encourage more Canadians to invest and save for their future.” McKenzie also suggested increasing the lifetime capital gains exemption from $800,000 to $1 million. This change would allow Canadians to sell more of their investments without paying taxes. Freeland has not yet responded to McKenzie’s letter. However, she has previously said that she is open to reviewing the capital gains tax. In her 2021 budget, Freeland announced plans to introduce a new tax on the sale of luxury homes over $1 million. However, this tax was later scrapped after facing criticism from the real estate industry. The capital gains tax is a federal tax on the profit made from the sale of an asset, such as a stock, bond, or property. The tax is calculated as the difference between the sale price and the adjusted cost base of the asset. The adjusted cost base is the original purchase price of the asset plus any costs incurred to acquire or improve the asset. The capital gains tax is paid when the asset is sold. The tax rate depends on the type of asset and the taxpayer’s income. For most individuals, the capital gains tax rate is 50%. However, there are some exceptions to this rule. For example, the capital gains tax rate is 25% for gains from the sale of a principal residence. The capital gains tax is a significant source of revenue for the federal government. In 2020, the government collected $13.6 billion in capital gains taxes.