Canada’s Parliamentary Budget Officer (PBO) estimates that the Liberal government’s recent capital gains tax changes will generate $17.4 billion in additional income tax revenue between the 2024–25 and 2028–29 fiscal years below the federal government’s own projection of $19 billion over the same period.
In a report released Thursday morning, the PBO said the revenue could be even lower, potentially dropping to $15.6 billion, once the volatility of capital gains income is taken into account. The tax increase was introduced in the 2024 federal budget as a way to help finance billions of dollars in new government spending.
The changes involve an increase to the capital gains inclusion rate, which came into effect on June 25. Under the new rules, individuals now pay tax on two-thirds of capital gains above $250,000 per year, up from the previous one-half inclusion rate. For corporations and trusts, all capital gains are now taxed at the two-thirds rate. Capital gains from the sale of a principal residence remain exempt.
To arrive at its estimates, the PBO analyzed historical Canada Revenue Agency tax return data, examining the proportion of capital gains within the overall tax base for individuals, trusts and private corporations. These figures were then combined with the PBO’s internal fiscal projections.
A spokesperson for the PBO told that the office does not yet have concrete data on how many Canadians will ultimately be affected by the tax hike, but said further analysis may be done in the future. The federal government has previously estimated that only 0.13 per cent of Canadians would pay more personal income tax as a result of the change.
The PBO also factored in taxpayer behaviour following the budget announcement, assuming a surge in asset sales during the roughly 10-week window between the budget’s release and the June 25 implementation date.
“It was assumed that corporations would see a more significant increase in realized capital gains before June 25, because all their capital gains will be subject to the higher inclusion rate after that date,” the report stated.
By contrast, the PBO noted that individuals have more flexibility to manage their tax exposure over time, since only capital gains exceeding $250,000 in a given year are subject to the higher rate. As a result, the PBO adjusted its long-term revenue projections downward, assuming a larger portion of gains were realized early rather than spread evenly across future years.
The report also highlighted the inherent unpredictability of capital gains revenue. “Capital gains are more volatile than other types of income,” the PBO said, noting they are influenced by market conditions, economic cycles and tax policy changes. This volatility, combined with behavioural responses, could reduce overall revenue to as low as $15.6 billion.
Certain assets, such as real estate, unvested stock options and shares in private corporations, were also considered harder to liquidate within the short pre-deadline window. The PBO assumed a 15 per cent increase in capital gains realizations for corporations and a 10 per cent increase for individuals, while acknowledging “significant uncertainty” due to the rushed timeline, late introduction of draft legislation and the realities of a minority Parliament.
The report quickly drew reactions from across the political spectrum.
Speaking in London, Ont., NDP Leader Jagmeet Singh acknowledged that the changes would raise additional revenue, but criticized the Liberals for acting too late.
“We have always believed it is unfair that a nurse or plumber or someone working in public service has their entire salary taxed, while someone trading stocks is only taxed on half their gains,” Singh said, adding that the government took nine years to make the tax system “more fair.”
The Conservatives were more sharply critical. In a statement, Conservative finance critic Jasraj Singh Hallan said the PBO report shows the Liberals were “making things up as they went.”
“It will be working and middle-class Canadians who can’t afford to feed, heat and house themselves who will be on the hook for this spending, just like they have been under nine years of inflation and taxes,” Hallan said.
The Liberal government did not directly address the lower revenue estimate but defended the policy as a fairness measure. Katherine Cuplinskas, deputy director of communications for Finance Minister Chrystia Freeland, said the changes are part of a broader effort to rebalance the tax system.
“We are committed to fairness for every generation by building more homes, making life more affordable and creating more good-paying jobs,” she said. “Making the tax system fairer is the fiscally responsible thing to do.”
