Middle class is the new ultra-wealthy bracket

A lot of Canadians are about to find out they’re richer than they think, at least according to the taxman.

The way the Trudeau government is pitching its capital gains tax hike, you’d think it’s only going to affect Canada’s richest 0.13% of taxpayers.

Unless you own your own private jet, you shouldn’t have anything to worry about, right?

And yet, since the changes have been proposed, a large number of stories have emerged in the media regarding everyday Canadians and how they would be affected, despite having incomes far below the $203,100 their elected representatives in Ottawa are set to earn this year.

Those affected include people like Liz Diachun, a 93-year-old Ontario grandmother who gifted part of her farm to her daughter and grandson, and wound up receiving a $40,000 bill from the Canada Revenue Agency.

They include people like Roch and Rose, two Montrealers who saved up, purchased a duplex in the 1990s, and were banking on its sale to fund their retirement. Together, they earn around $60,000 per year.

While only a small fraction of Canadians declare high capital gains income in any given year, most of those who do only wind up having such large incomes once in a lifetime, after selling assets such as a duplex, a cottage or a small business.

The best way to understand this is to look at people who declare high capital gains in one given year, and then look at their subsequent tax declarations. That’s what Statistics Canada’s Longitudinal Administrative Database does.

In 2011, there were 25,100 Canadians who declared capital gains income of $250,000 or above on their tax forms. Of those, nearly two-thirds never had such capital gains again over the subsequent decade. A further 15% only had such gains once more during that period.

In fact, less than 1% of all Canadians who declared such large capital gains in 2011 declared similar gains every year over the subsequent decade.

That’s why the Trudeau government’s claim that this only affects 40,000 taxpayers is problematic. While it may affect a limited number of people in a given year, the people affected are different every year.

For their lifetime, 1.26 million Canadians will likely be directly targeted by Trudeau’s increase in the capital gains tax, according to calculations from economist Jack Mintz, President’s Fellow at the University of Calgary.

To put that number in perspective, about as many Canadians are going to get a higher tax bill because of this change, at some point in their lives, as there are people currently living in the entire province of Saskatchewan. That’s a whole lot more than the 0.13% put forward by the Trudeau government.

And of course, that’s only those who are going to be directly affected through a higher tax bill.

The effect becomes much worse when you include those who will be indirectly affected by it.

Since the change was first announced, the Canadian Medical Association has been warning Ottawa about the impacts it could have on our ability to retain Canadian physicians.

Doctors’ practices in Canada tend to be incorporated as small businesses. As a result, the federal government’s decision to increase taxes on capital gains increases also taxes on our nation’s doctors.

Now, to be clear, not a single doctor is at risk of skipping a meal to pay for this tax hike. Nevertheless, increasing their taxes, at a time when provincial governments are struggling to attract and keep them, is counterproductive, to say the least.

By levying higher taxes on them, Ottawa is making it that much more attractive for Canadian-trained doctors to take their practice across our southern border, where they would get paid more and taxed less.

This, in turn, would make our problems accessing health care even worse, as we lose more and more treatment capacity.

Whether you’re affected directly or indirectly, it is quite clear that Ottawa’s capital gains tax hike will impact a great many Canadians, including a large number of middle-class folks.

That’s the thing with Ottawa’s attempts to soak the rich, though — the taxman has a tendency to imagine that you’re richer than you think.

Emmanuelle B. Faubert is an Economist with the MEI and the author of “Increasing the Capital Gains Inclusion Rate: A Tax Hike on Investing and Entrepreneurship.” The views reflected in this opinion piece are her own.

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