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69 Can. Tax J. 1157 (2021)
Inequity and Inefficiency in the Tax Treatment of Capital Gains

handle is hein.journals/cdntj69 and id is 1243 raw text is: CANADIAN TAX JOURNAL / REVUE FISCALE CANADIENNE (2021) 69:4, 1157-74 https://doi.org/10.32721/ctj.2021.69.4.pf.smart Policy Forum: Inequity and Inefficiency in the Tax Treatment of Capital Gains Michael Smart and Sobia Hasan Jafry* PR CIS Cet article presente les arguments en faveur d'une augmentation des taux d'imposition des gains en capital en vertu de la Loi de l'imp6t sur le revenu du Canada. Le traitement fiscal preferentiel actuel des gains en capital coOte 35 milliards de dollars par an au gouvernement en recettes perdues, et ce sont majoritairement les familles a revenu 6lev6 qui en tirent profit. Pour remedier a l'iniquit6 du systeme actuel et pour reduire les 6carts par rapport a la neutralit6 fiscale, le taux d'inclusion de 5o pour cent des gains en capital devrait 6tre porte a 8o pour cent. Cette hausse constituerait un moyen plus simple et plus efficace d'imposer les particuliers fortunes que les recentes propositions d'un nouvel imp6t sur la fortune, et elle genererait aussi probablement beaucoup plus de recettes. 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 5o percent inclusion rate for capital gains should be raised to 8o 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: CAPITALGAINS ETAXAVOIDANCEETAXSHELTERS ETAX EQUITYESURPLUS STRIPPING. INCOME DISTRIBUTION * Of the Department of Economics, University of Toronto (e-mail: michael.smart@utoronto.ca; sobia.jafry@mail.utoronto.ca). This article expands on previous commentary in Michael Smart, It's Time To Increase Taxes on Capital Gains, Finances of the Nation, January 7, 2021 (https:// financesofthenation.ca/202 1/01/07/its-time). The distributional estimates in this article are based on analysis of individual tax records from Statistics Canada's Longitudinal Administrative Databank accessed through the Toronto Research Data Centre, and so are different from those presented in the Finances of the Nation commentary, which were based on public aggregate data. 1157

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