Canada’s 67% Capital Gains Tax Could ‘Stifle’ Economic Growth and Innovation- Daryl Ching

Canada’s 67% Capital Gains Tax Could ‘Stifle’ Economic Growth and Innovation- Daryl Ching

hey everyone I’m Jeremy saffr you’re
watching kcko news if you haven’t
already don’t forget to hit that
subscribe button to our channel for the
latest now today on the show in a
significant shift in US tax policy
President Biden’s 2025 budget proposal
includes a significant increase in the
capital gains tax is proposing a top
rate of
44.6% for individuals with a taxable
income over $1 million this marking one
of the highest rates since the 1920s
meanwhile in Canada similar henious
proposal under prime minister Justin
Trudeau could see capital gain taxes
increase up to 67% on gains over
$250,000 which has many people concerned
now Biden still has to pass this bill
through an angry congress with many
publicly against the tax increase but in
Canada prime minister Trudeau’s Liberal
Party holds a minority government
meaning that they could pass this
proposed capital gains tax increase with
the support from the NDP party and have
given a deadline of June 2th fifth for
this to take effect now there’s also a
critical difference between the two
proposals which we will break down while
the US proposal targets a specific
income group Canada’s broader approach
could affect a wider segment of the
population doctors and entrepreneurs are
already speaking out now critics argue
that such increase could stifle our
economy small businesses and our
Innovation suggesting that these are not
just taxes on the rich but measures that
could have broader economic
repercussions for everyone and joining
us to discuss these developments is darl
Ching he’s a chartered financial analyst
also the owner and CEO at vistan Capital
advisory darl thanks for joining us
today I’m looking forward to having you
on thank you for having me Jeremy now I
really want you to help unpack this not
only for our audience but also for me
here uh first let’s start with the US
President Biden’s proposing to align the
capital gains tax with the highest
income bracket at 44.6% for those
earning $1 million uh explain the US
proposal to us and what shifts we might
see in strategies here for those
earners well there’s a small Silver
Lining to that announcement because it’s
only on the short-term capital gains tax
so it will certainly affect people who
do trading on a stock portfolio who hold
Investments for less than a year and
then they will be you know the tax rate
going from 37 to 44 is somewhat
substantial now the 25% on unrealized
gains is a much bigger issue because
what that means is
even if you don’t sell your investment
in the short term and you still hold on
to it but you have an unrealized gain
meaning the market value has gone up by
a certain amount you can still get taxed
on it even though you haven’t sold the
asset yet so I I would say that that
component is more
substantial yeah talk to me a little bit
more about this though darl let’s break
down that you know this unrealized if
you got the inclusion of a 25% tax on
unrealized capital gains for households
worth more than $100 million isn’t this
going to lead to some liquidity issues I
mean talk to me a little bit about what
this really
means yes I it’s going to lead to
liquidity issues as well because you
know typically if you have a stock
portfolio that is a sit and hold
strategy where you’ve hold a bunch of
stocks but you don’t sell um you
typically don’t have to pay Capital
Gains you only generally have to pay
Capital Gains when you sell your your
stocks or sell your assets in this case
you can simply have to you you will have
to pay even with any monetary increase
in value on your portfolio so this will
be a considerable shift when you talk
about uh uh the value in terms of like1
10000 million households you’re looking
at probably a range of 25% increase in
tax payments above and beyond what
people would have expected to pay
initially in terms of capital gains so
that is quite
substantial yeah I mean let’s compare
the US proposal to Canada’s for a moment
just to give a little bit of context I
mean Canada’s increase at 67% on capital
gains over 250 so I’m going to try and
break this down then we’ll go to you
bear with me you know previously in
Canada the tax system offered to break
where only half of your capital gains
were taxed the rest was yours to keep
now the new budget slashes this break
dramatically right now you’ll only keep
onethird of your gains taxfree the other
two-thirds they’re grabbing it
back yeah so let me break it down in a
different way initially the proposal was
that Canada with 50% of your capital
gains was taxable at your personal
income tax rate and when you’re looking
at entrepreneur selling businesses we’re
talking about millions of dollars in
terms of the sale the highest income tax
bracket in Canada is just North of 50%
no matter what province you’re in so if
you go 50% times 50% effectively your
effective tax rate was 25% on capital
gains all said and done now they’re
saying that with the new proposal the
Canadian government deems 2/3 of your
capital gains to be taxable so if you
take 2/3 times 50% % you’re now looking
at
33% so effectively the effective tax
rate has gone from 25% to
33% to put things into perspective the
long-term capital gains tax rate in the
US at the highest level is 20% and if
you hit certain income levels there may
be a 3.8% Surplus so you’re at
23.8 so prior to this announcement
Canada and us were pretty close there
was 23.8% in the US versus 25% in Canada
Canada is now shot up to 33% so
effectively you are now paying 10% more
on capital gains in Canada than you are
in the US on a long-term investment and
that could be real estate that could be
a business that you started and held for
10 years and then sold and if you’re
talking about a $5 million sale that in
itself could mean an additional payment
of $500,000 in taxes which is
substantial in Canada with far-reaching
implications yeah absolutely I mean in
the the us too we talked about those two
notable differences uh on the game side
but which approach do you think has a
more significant potential to impact
High earners but also business investors
negatively here because I mean we’re
already in this world where
overregulation is happening I’m just
curious you know between the US and
Canada here are they going to pass
what’s going
on well you know from a political
perspective I think it gets a bit easier
to pass when you focus on capital gains
because because there is this perception
in the marketplace that this is a tax on
the rich right but I do believe that
that you know view is oversimplified
because there is some Merit to that
obviously people that own yachts and
multiple uh investment properties are
going to get hit but if you look at the
entrepreneur a lot of us that start
businesses don’t start wealthy in fact
we often have to put up our life savings
sometimes we go into debt to start a
business in the hope of making a
successful exit in the future where 90%
of businesses fail and you know when you
look into what entrepreneurs go through
we get into situations where we have to
stop paying ourselves uh sometimes we
have to mortgage uh to do a second
mortgage or take off debt in order to
continue paying our employees keep the
lights on so with this
risk isn’t that fair to suggest that if
we are the small fraction of
entrepreneurs that make it successfully
make an exit that we should be able to
keep most of the capital and I think
that’s the segment of the population
that is really that impacted the most
because if you also think about it small
businesses uh contribute about 67% of
the employment in Canada and that’s
about businesses with less than 100
employees so think about the KnockOn
effect if entrepreneurs decide a not to
start a business in Canada or even B the
existing businesses decides to pack up
and move to a different jurisdiction
what impact that would have on the labor
market in Canada in general yeah you
know before we get into the small
business impact because there’s a huge
amount there we need to unpack I’m
curious just about regular guys like you
and me I mean you know regular Canadians
Americans we’re talking about I mean
even though in Canada your primary home
or residence is exempt many Canadians
could feel the impact of this tax change
you know we’re already seeing some real
estate selling off before this deadline
through the sale of cottages and
secondary residences you know rental
prop properties it isn’t just taxing the
rich here it’s a tax on the middle class
and I’m curious about that because it’s
people that have acquired some of these
Investments for their
retirement well capital gains has an
impact on any investment that you can
have and to suggest that only rich
people have Investments is benign so you
know so from my
perspective even the middle class people
have portfolios where they have uh own
stocks they own bonds they own and you
know sometimes you own an investment
property well in the US that short-term
capital gain hit is really more of a hit
on short-term trades but going from from
35 to to for 42% that is a pretty
substantial increase in tax in itself on
the equity portfolio when you choose to
sell and the as I mentioned the 25%
unrealized gain portion is uh pretty is
pretty substantial as well it’s huge
what it’s going to do it’s going to
discourage investment in ter like you
know from perspective the reason why
capital gains generally is taxed less is
because there’s a perceived risk in that
there is a possibility of losing the
investment losing money and that is
really the reason behind why uh that the
it is tax lower than for example for
salaries yeah and so when you start
making Investments less attractive you
start to see less investment in R&D less
investments in building a small business
to employ people um and from the middle
class side you’re looking at paying a
lot more taxes on just your general
portfolio of assets that could contain
stocks bonds and other General
Investments as well yeah you know I
wonder how much of this is just
political seems like Justin Cho is
looking for a vote everywhere he can
kind of grab it these days especially in
a time where we have so much debt this
seems to be compounded with this you
know let’s go back to that small
business for a second because you know
the stat is is as a of 2022 there are
1.21 million total businesses in Canada
1.19 million or
97.9% almost 80 or sorry almost 98% were
small businesses that’s a very
substantial role in can in Canada’s
economy so I’m a little bit curious here
what do we got to lose I mean is this
going to be job Creations economic
growth we have a lot of people in the
tech industry and Innovative Industries
coming out today and saying this is
stifling us
AB it’s absolutely stifling and then
like now let’s look at existing business
owners for business owners right now
that are sitting there looking at these
changes in the tax code they’re saying
wow so if I
successfully sell my business if I grow
my business to $10 million and I sell it
I am now paying a third effectively in
in taxes is there another jurisdiction
that I should move to that has a more
favorable tax regime in which I can
maintain more more where I can keep more
of my wealth upon exit and then there
are the entrepreneurs sitting on the
sidelines that are saying I’m thinking
about starting a business but I have to
weigh these factors into consideration
in terms of what is the risk
reward I am aware of the amount of risk
I am taking I’m aware of how much pain I
can put myself through through this
process to drive try to create a
successful business but I don’t know if
I want to do that anymore so in terms of
when you say the when you use the word
stifling you’re talking about you know
making it much more difficult for
entrepreneurs to pull that trigger and
start a business or even stay in the
country well talk to me a little bit
about this investment climate and maybe
some Capital flight I mean we already
have issues with our Capital markets in
terms of liquidity even the amount of
eyeballs if we think about foreign
investments often we talk to Business
Leaders and they already look to Canada
as being overregulation and they’re
already unsure of bringing their
business here is this going to impact
future business is
here it is because you know not so much
on foreign investor because a lot of
foreign investors attx based on their
own jurisdiction but if you look at
domestic investors so you’re looking at
private Equity Venture Capital even high
net with individuals that like to invest
in small businesses they face capital
gains upon making an exit a lot of them
invest in small private businesses and
realizing that nine out of 10 of their
Investments they could end up seeing
nothing back like the these nine of the
10 Investments are going to end up
failing and therefore they’re going to
have to write those Investments down to
zero so they want to be rewarded for the
few that do pick up for the few that
actually make successful exits so in
their situation as well they’re looking
at this and going well I’m retaining a
lot less reward for the risk I am taking
for writing these checks and making
these Investments so I’m not sure if I
want to take these risks anymore um
maybe I will go to a more favorable
jurisdiction where I can make these
Investments and reap more of the rewards
in that situation so even from an
investment perspective this can be
catastrophic yeah darl I mean you talked
to business owners on a day-to-day basis
you work on Capital raising as well as
obviously on tax side I’m curious what
they’re saying to you right now I mean
what are the conversations that you’re
having with your clients in these new
regulations well you know I work mainly
in Canada and um I have some clients in
the US as well so my Canadian clients
have said you know we realize this is
not a fantastic place when it comes to
tax but we like some of the benefits
here in the country uh but a lot of them
have contemplated move into the US
especially my Canadian clients that have
majority us clients and are doing
business in the US and traveling there
all the time as a result of this new
rule coming up in Canada a bunch of them
are saying now well with this change uh
decision’s even becoming easier if they
were on the fence and they were about to
pull the trigger to make a move to the
US
then they’re going to do it a lot of
them are going to make that move and go
South of the Border granted the the US
government doesn’t make changes to
long-term capital gains tax rule which
remains still unaffected based on the
announcement from Biden but you could
see a flight of capital of brain drain
in terms of entrepreneurs and small
businesses moving to more favorable
jurisdictions yeah it’s so difficult out
there just to stay afloat these days and
that brings me to my next point you know
there’s a perception that these tax
hikes Target the ultra Rich you know
that we’re somewhat out of touch people
in the business Community you you need
to pay this you need to pay this I’m
curious though if there’s a potential
for you know broader ramifications here
really break down how this might affect
the middle class and also this
perception out there and how we can
break
it right um capital gains affects
anybody who owns an asset if you own an
asset uh and now no the exception of
your primary home but if you have an
investment uh property if you own stocks
if you own a private investment in a
private business all of these things get
affected and it’s not only wealthy
people that have them now do we impact
wealthy people of course we do well it
does affect uh a lot of the assets that
I just mentioned but it also affects the
middle class that have any assets uh
that could be subject to capital gains
tax and for my perspective I’m an
entrepreneur I am not wealthy but I
started a business because I saw a gap
in the Marketplace I saw that there was
a gap in the accounting industry and I
thought I could do it better like other
entrepreneurs we jumped into business
because we believe we can offer a
product or service that consumers would
like and we can make the country better
so we jump into this but I know that
where I’m trying to get to is to grow my
business to A5 to10 million do business
and sell in the future which is the
mindset of most business owners so this
impacts me directly as well even though
I don’t have that wealth today and the
capital gain doesn’t affect me as much
today it could certainly affect me
tomorrow and affect my decision of where
I want to be when I decide to pull the
trigger and sell my business yeah and
and don’t you think it’s just you know
we’re allowed to creatively build
businesses and profit off of them this
is just capitalism have we taken a step
back we just mentioned that this is the
highest proposed tax since the 20s in
the US and Canada it’s taking it to a
whole Next Level are we going backwards
in a time where our economies are BAS
Bally doomed and our gdps going down I
think it’s unfortunate I mean I I what
happened was Co came and the government
just started writing blank checks yeah
and obviously pumped so much money to
the economy which is what caused the
inflation and now we’re in that ratchet
back period where the government has
realized that they overreached on
spending and need to cut back and it’s
very unfortunate that they’re making
decisions to cuts to on capital gains in
this area that is going to imp act
Innovation research and development
entrepreneurship small business um and
this is just one area where we are
saying don’t make Cuts in this area this
is not the right space we need to be
pushing more Innovation we need more R&D
going on we need to be creating jobs and
this effectively is doing the opposite
yeah it’s interesting you know I saw an
article today there’s a lot of talk up
in Canada and headlines about doctors
pushing against this bill because of
course their business runs as a
corporation and any profits or capital
gains you know there might be less
sympathy for entrepreneurs that are
making billions of dollars and things
like this but when it comes to a country
that has public health and we’re taxing
the doctors even more and they’re saying
we’re going to leave Canada what’s the
impact I mean this goes larger I guess
is my point than it
seems it goes larger because it’s not
just doctors it’s generally
practitioners occupational therapists
dentists hair stylists sometimes but
they are a lot of people in the gig
economy in Canada that are set up as SL
Proprietors and function as a single
person company effectively and like so
sole proprietorship and a lot of these
people are set up like many
businesses um and even though they are
one person on contract so every one of
these professions is impacted because
the capital gains directly impacts this
group of people so even if you’re not
sympathetic to doctors because you know
there’s a perceived uh there’s a
perception that doctors make a lot of
money you have to look at photographers
you have to look at any entrepreneur set
up as a s proprietor that is going to
face the exact same issue and it’s going
to be thinking of the exact same things
that I just mentioned is this the right
country for me is this the right place
to be based on the current tax system
should I be looking somewhere else to
set up yeah no fascinating and I know we
always lose a few people when we talk
about taxes our favorite topic Daryl
Ching a chartered financial analyst and
the managing partner and CEO at vist
Capital advisory joining us today to
break it all down thanks for coming on
darl hopefully we didn’t lose anyone
with all this
jargon I hope not also j i I have a I
have I’m very good at putting people to
sleep but today I put on my jacket I had
my coffee and I decided I’m G to try to
make it as interesting as possible
cheers my friend I appreciate it thanks
for your time today thank you I’m Jeremy
saffr thank you for your time back home
as well for all of us here at Kiko news
thanks for watching go like that video
subscribe and we’ll see you next time
and
[Music]

Jeremy Szafron, Anchor at Kitco News, interviews Daryl Ching, Chartered Financial Analyst and Managing Partner at Vistance Capital Advisory, in a detailed discussion on the proposed capital gains tax increases in the U.S. and Canada. They explore how these changes might affect economic growth, investment strategies, and the entrepreneurial landscape. Watch as they dive into the specifics of each proposal, compare the impacts on different income groups, and discuss potential outcomes for the North American economy.

Follow Jeremy Szafron on X: @JeremySzafron (https://twitter.com/JeremySzafron)
Follow Kitco News on X: @KitcoNewsNOW (https://twitter.com/kitconewsnow)

0:00 – Introduction
1:00 – Biden’s Capital Gains Tax Plan
3:00 – Canada’s Proposed Tax Increase
5:00 – U.S. Tax Changes
8:00 – Unrealized Gains Tax and Liquidity Issues
11:00 – Tax Changes in U.S. vs. Canada
14:00 – Effects on Entrepreneurs and Small Businesses
16:00 – Economic and Political Implications
18:00 – Viewer Questions and Expert Responses
19:30 – Closing Remarks and Summary

#FinanceNews #CapitalGainsTax #EconomicImpact #DarylChing #KitcoNews #InvestmentStrategy #USvsCanada #gold #goldprices #economy #taxes #capitalgainstaxdeferral #investing
__________________________________________________________________
Kitco News is the gold standard in precious metals, commodities, cryptocurrencies, mining, and financial news.

SUBSCRIBE to our channel to stay current on the latest market and industry news.

For breaking news, views, charts, and data on precious metals, cryptocurrencies, and financial markets – visit us at https://www.kitco.com

To get market updates on the go, download the Kitco Gold Live! APP – https://applications.kitco.com

Stay connected:

Twitter – https://twitter.com/kitconewsnow
Instagram – https://www.instagram.com/kitconews
Facebook – https://www.facebook.com/KitcoNews
LinkedIn – https://www.linkedin.com/company/kitconews
StockTwits – https://stocktwits.com/kitconews

Live gold price and chart: https://www.kitco.com/gold-price-today-usa/
Live silver price and chart: https://www.kitco.com/Silver-price-today-USA/
Live crypto market data: https://www.kitco.com/price/crypto/

Learn more about Kitco News: https://www.kitco.com/news/about/

For more information on advertising, sponsorship and marketing promotions – please visit our online media kit at: www.kitco.com/advertising

Disclaimer: The videos are not intended to provide trading advice, and the views expressed do not necessarily reflect those of Kitco Metals Inc. Kitco News, its anchors, and reporters are not responsible in any way for the performance or actions of any sponsor, advertiser or affiliate of Kitco News.