In 2017, about 60 percent of capital gains taxes were paid by those earning more than $250,000. In this manner, it is normal to expect that a reduction in capital gains taxes – a measure that some policy analysists have advocated for – would disproportionately benefit the top income earners in Canada.
However, a recent Fraser Institute Study challenges this notion. The study highlights that if one-time capital gains are removed from taxable income, almost 50 percent of the capital gains taxes in 2017 were paid by Canadians earning less than $100,000.
For instance, suppose a person earns $50,000 per year in after-tax income in a corporation. She does not receive any income form the corporation, choosing instead to realize the growth in the form of a $500,000 capital gain ten years down the line. The capital gain would place her in the top income tax bracket (i.e., $250,000 in taxable income). However, economically speaking, she was only better off by $50,000 per year. Therefore, in these instances, it makes sense to remove one-time capital gains from the equation. According to the Fraser Institute study, removing these one-time capital gains from taxable income points to something that is often overlooked: lower-income taxpayers pay a lot more of the capital gains tax than what is generally perceived.
Please click here to read the Fraser Institute study.