Policy Forum: Inequity and Inefficiency in the Tax Treatment of Capital Gains

Michael Smart () and Sobia Hasan Jafry ()
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Michael Smart: Department of Economics, University of Toronto
Sobia Hasan Jafry: Department of Economics, University of Toronto

Canadian Tax Journal, 2021, vol. 69, issue 4, 1157-1174

Abstract: This article makes the case for increasing tax rates on capital gains income under Canada's Income Tax Act. The current tax preference for capital gains costs $35 billion annually in forgone government revenues, with much of the benefit accruing to high-income families. To address the inequity of the present system, and to reduce tax non-neutralities, the 50 percent inclusion rate for capital gains should be raised to 80 percent. This would constitute a simpler, more efficient way of taxing high-wealth individuals than recent proposals for a novel tax on wealth, and would likely generate far more revenue as well.

Keywords: Capital gains; tax avoidance; tax shelters; tax equity; surplus stripping; income distribution (search for similar items in EconPapers)
Date: 2021
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DOI: 10.32721/ctj.2021.69.4.pf.smart

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