Quebec imitates Ottawa and raises taxes
(Quebec) Quebec had pledged not to raise taxes to get out of the hole, but the federal budget changed the situation completely. He followed Ottawa's lead and raised taxes on capital gains, which he estimated would bring in $3 billion over five years.
Finance Minister Eric Girard confirmed this in a press release Thursday afternoon: "The government announces that it will adjust Quebec's tax system to harmonize it with certain measures proposed in the federal budget," including the increase in the capital gains inclusion rate.
"Our goal remains to reduce the overall tax burden on taxpayers while maintaining sound management of public finances," he said.
A capital gain is income from the sale of a property that has increased in value, such as a secondary residence, a cottage, a plex or shares (the principal residence is excluded for tax purposes). Currently, we pay tax, both federally and provincially, on half of capital gains. This is preferential treatment compared to that applied to employment income.
Under Tuesday's federal budget, starting June 25, the inclusion rate – the portion of capital gains that is taxable – will increase from one-half (50 per cent) to two-thirds (66.7 per cent) for anything over $250,000.
'Regressive'On Wednesday, the day after the tabling of the federal budget, Eric Girard pointed out that Quebec has always followed Ottawa when it comes to changes to the taxation of capital gains, both for individuals and corporations. All the other provinces will do so, he insisted to set the stage for his decision on Thursday.
He used the same argument when he was reminded of his commitment not to raise taxes in order to balance the budget, a promise he made on March 12 when he tabled his $11-billion deficit budget. He had argued for the need for "fiscal cohesion"
between the provincial and federal systems.
A few hours before Mr. Girard's announcement, Economy Minister Pierre Fitzgibbon explained that his
colleague could hardly not follow Ottawa.
Raising taxes on capital gains will raise $600 million a year – which will be paid by about 10,000 people, he says – while Quebec's structural deficit amounts to $4 billion annually.
"Are we insensitive to this? Put yourself in the shoes of the Minister of Finance, Mr. Girard, who has to go to the credit agencies in May. And we say, "The federal government does this, we don't"? " he explained during the study of his ministry's appropriations on Thursday at the National Assembly. "There's a financial rigour that we have to keep in mind before we say, 'No, we're not harmonizing.' »
His Liberal counterpart, Frédéric Beauchemin, opposed the tax increase. He believes that Quebec
should stand on its own and not follow Ottawa.
Frédéric Beauchemin
"This tax is a tax against innovation, a tax against productivity, a tax against entrepreneurship. It's a very regressive system," said Mr. Beauchemin, who is worried about young SMEs and triplex owners.
"Harmonization"Pierre Fitzgibbon has shown himself to be more sensitive to entrepreneurs who wish to sell or bequeath their business. "There's the whole issue of capital gains on equity investments or for cottages, I'm a little less sensitive to that. I am more sensitive to SMEs. »
His immediate concern is "recovery". "I was with 50 entrepreneurs, many of whom mentioned that it will have an impact on the transfer or sale of a business. We're going to have to think about it," Fitzgibbon said. "If there is harmonization, we will have to look at what the impact is for SMEs and whether there needs to be a specific program to counteract this."
For its part, the Parti Québécois already proposed a 100% inclusion rate in 2012, but this is no longer the case. "As soon as we decide not to do it and then we don't put it in the election program, well, it no longer exists for us," MP Joël Arseneau said Wednesday. Mr. Bérubé added on Thursday: "We don't have a position, but we'll get back to you."
Québec solidaire is in favour of increasing the tax on capital gains.
During the 2012 election, the Coalition Avenir Québec promised to increase the taxation of capital gains,
increasing the inclusion rate from 50% to 75%.
"To be able to finance our measures, we are asking everyone to make an effort, including those who are a little more fortunate," said its leader, François Legault. This commitment later disappeared from the list of CAQ promises.
In a letter published by La Presse recently, professors Antoine Genest-Grégoire (Research Chair in Taxation and Public Finance at the Université de Sherbrooke) and Olivier Jacques (researcher at CIRANO) wrote that "82% of capital gains are generated
by the richest 10% and 57% by the top 1%."
In 2015, the Quebec Taxation Review Commission, created by the Couillard government and chaired by tax expert Luc Godbout, recommended "reviewing the method of taxing capital gains" in order to increase the tax grab. "This review would aim to treat capital gains more equitably, compared to other sources of income," the report reads. The Commission added that Quebec would have to coordinate with Ottawa to implement such a measure.
Finance Minister Eric Girard confirmed this in a press release Thursday afternoon: "The government announces that it will adjust Quebec's tax system to harmonize it with certain measures proposed in the federal budget," including the increase in the capital gains inclusion rate.
"Our goal remains to reduce the overall tax burden on taxpayers while maintaining sound management of public finances," he said.
A capital gain is income from the sale of a property that has increased in value, such as a secondary residence, a cottage, a plex or shares (the principal residence is excluded for tax purposes). Currently, we pay tax, both federally and provincially, on half of capital gains. This is preferential treatment compared to that applied to employment income.
Under Tuesday's federal budget, starting June 25, the inclusion rate – the portion of capital gains that is taxable – will increase from one-half (50 per cent) to two-thirds (66.7 per cent) for anything over $250,000.
'Regressive'On Wednesday, the day after the tabling of the federal budget, Eric Girard pointed out that Quebec has always followed Ottawa when it comes to changes to the taxation of capital gains, both for individuals and corporations. All the other provinces will do so, he insisted to set the stage for his decision on Thursday.
He used the same argument when he was reminded of his commitment not to raise taxes in order to balance the budget, a promise he made on March 12 when he tabled his $11-billion deficit budget. He had argued for the need for "fiscal cohesion"
between the provincial and federal systems.
A few hours before Mr. Girard's announcement, Economy Minister Pierre Fitzgibbon explained that his
colleague could hardly not follow Ottawa.
Raising taxes on capital gains will raise $600 million a year – which will be paid by about 10,000 people, he says – while Quebec's structural deficit amounts to $4 billion annually.
"Are we insensitive to this? Put yourself in the shoes of the Minister of Finance, Mr. Girard, who has to go to the credit agencies in May. And we say, "The federal government does this, we don't"? " he explained during the study of his ministry's appropriations on Thursday at the National Assembly. "There's a financial rigour that we have to keep in mind before we say, 'No, we're not harmonizing.' »
His Liberal counterpart, Frédéric Beauchemin, opposed the tax increase. He believes that Quebec
should stand on its own and not follow Ottawa.
Frédéric Beauchemin
"This tax is a tax against innovation, a tax against productivity, a tax against entrepreneurship. It's a very regressive system," said Mr. Beauchemin, who is worried about young SMEs and triplex owners.
"Harmonization"Pierre Fitzgibbon has shown himself to be more sensitive to entrepreneurs who wish to sell or bequeath their business. "There's the whole issue of capital gains on equity investments or for cottages, I'm a little less sensitive to that. I am more sensitive to SMEs. »
His immediate concern is "recovery". "I was with 50 entrepreneurs, many of whom mentioned that it will have an impact on the transfer or sale of a business. We're going to have to think about it," Fitzgibbon said. "If there is harmonization, we will have to look at what the impact is for SMEs and whether there needs to be a specific program to counteract this."
For its part, the Parti Québécois already proposed a 100% inclusion rate in 2012, but this is no longer the case. "As soon as we decide not to do it and then we don't put it in the election program, well, it no longer exists for us," MP Joël Arseneau said Wednesday. Mr. Bérubé added on Thursday: "We don't have a position, but we'll get back to you."
Québec solidaire is in favour of increasing the tax on capital gains.
During the 2012 election, the Coalition Avenir Québec promised to increase the taxation of capital gains,
increasing the inclusion rate from 50% to 75%.
"To be able to finance our measures, we are asking everyone to make an effort, including those who are a little more fortunate," said its leader, François Legault. This commitment later disappeared from the list of CAQ promises.
In a letter published by La Presse recently, professors Antoine Genest-Grégoire (Research Chair in Taxation and Public Finance at the Université de Sherbrooke) and Olivier Jacques (researcher at CIRANO) wrote that "82% of capital gains are generated
by the richest 10% and 57% by the top 1%."
In 2015, the Quebec Taxation Review Commission, created by the Couillard government and chaired by tax expert Luc Godbout, recommended "reviewing the method of taxing capital gains" in order to increase the tax grab. "This review would aim to treat capital gains more equitably, compared to other sources of income," the report reads. The Commission added that Quebec would have to coordinate with Ottawa to implement such a measure.