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Ordinary Canadians Pay 40% of all Capital Gains Taxes

40% of Canadians who pay capital gains taxes earn less than $100,000 a year.

There is a common misperception that capital gains taxes are only paid by rich Canadians.

“Despite what many Canadians believe, most capital gains taxes are paid by ordinary Canadians not the super wealthy, and raising this tax, would weaken Canada’s economic recovery, “says Alex Whalen, the analyst for the Fraser Institute.

The Fraser Institute study clarifies common misunderstandings about capital gains taxes. Namely, that only wealthy people pay them, and that Canada has a low capital gains tax rate compared to other developed countries.

The misperception that only wealthy people pay capital gains taxes results from the way income is measured. When the capital gain is included in income, the share of capital gains taxes paid by those earning more than $150,000 per year is 77%.

On the other hand, when the capital gain is not included in income, the share of capital gains taxes paid by those earning more than $150,000 per year falls to 48%, with the remaining 52% being paid by Canadians earning less than $150,000 a year.

In fact, the estimated share of capital gains taxes paid by those earning less than $100,000 a year is 38.4%, again, when the capital gain itself is excluded from income.

Canadians earning less than $100,000 a year pay a much greater portion of the capital gains taxes than most of us believe.

The study also finds that Canada’s capital gains tax rate (27%) is currently above the average for countries in the Organization of Economic Cooperation and Development (OECD), and substantially above the current tax rate in the US (20%) and Britain (20%).

The bottom line is that Canadians across the income spectrum, and the economy as a whole, would benefit from a lower, not higher, capital gains tax rate.

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