Sectors that earned most corporate capital gains created no jobs over 5 years: report

Two sectors accounted for the bulk of corporate capital gains in Canada over a five-year period, but created no new jobs during that time, a new study shows.

The Center for the Future of Work and the Institute for Socio-Economic Research and Information, two progressive policy think tanks, released a report that examines the companies and individuals who earn capital gains in Canada.

The analysis comes after heated debate in the country over the Liberals' decision to increase the capital gains inclusion rate, which is the profit from the sale of assets.

Business groups strongly opposed the increase, arguing that it would affect all Canadians, directly or indirectly, because it would hurt innovation and business investment.

But the report's author, economist Jim Stanford, says his analysis shows that having favorable capital gains taxes disproportionately benefits the rich and does not help the economy.

According to his findings, the diversified brokerage sector, which includes venture capital firms and investment banks, as well as the real estate sector, together accounted for 52.6% of all reported corporate capital gains in Canada between 2018 and 2022.

Meanwhile, these sectors lost almost 5,000 jobs during this period.

"These two sectors have been insignificant for job creation in Canada, accounting for more than half of all corporate capital gains," Stanford said in an interview.

This analysis is based on tax file data from the Canada Revenue Agency as well as Statistics Canada data.

The report also shows that there is no historical correlation between capital gains taxes and business investment in machinery, equipment and intellectual property.

On June 25, the Liberals taxed two-thirds of capital gains, up from half.

For individuals' capital gains up to $250,000, the inclusion rate will remain unchanged at 50 percent.

Prime Minister Justin Trudeau has defended the increase, arguing that it would make the tax system fairer by eliminating some tax benefits for wealthy people with significant investment portfolios.

The Liberals say the tax increase will help the government pay for priorities that are important to young people, such as housing.

Conservative leader Pierre Polivre has called the changes a job-killing tax hike. He argues that higher taxes on capital gains hurt businesses and thus lead to job losses.

Stanford's analysis doesn't look specifically at government changes, but he says the data clearly show that so far wealthy Canadians have benefited the most from favorable capital gains tax treatment.

Canadians with annual incomes of more than $250,000, who account for 1.5 percent of tax filings, earned 61 percent of individual capital gains in 2021, the report said.

High earners are not only more likely to report capital gains, Stanford says, but also enjoy more favorable tax treatment than low earners because they have higher marginal tax rates.

"A wealthy person would save more than 50 cents per dollar of capital gains, while a person at the bottom of the distribution might save 15 cents per dollar of capital gains," he said. So it's kind of a double-barreled effect on inequality there."

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