March 21, 2022 by John F. Oakey
Tax Series | 

Are capital gains rates set for a hike?

It’s time to get out the Magic 8-ball, shake it feverishly, stare into the depths of the swirling black mist and ask the question:

“Will the capital gains inclusion rate increase in the 2022 federal budget?”

Before the Magic 8-ball provides us with its mystical answer, let’s review what information we do have to see if we can predict the outcome on our own.

The minority interest

The Liberal minority government continues to rely heavily on the New Democratic Party (NDP) to pass bills through the House of Commons. With the federal budget on the horizon, the Liberal government may once again turn to the NDP for help. With the ever-present threat of the Bloc Quebecois and Conservatives refusing to vote for the 2022 federal budget, will the NDP provide its support or be a little more opportunistic? It is possible the NDP will attempt to negotiate one or more of its campaign promises into the Liberals’ budget platform, such as its pledge to increase the capital gains inclusion rate to 75 per cent.

Federal debt

With a federal debt of just over $1 trillion – which is approximately 48 per cent of Canada’s gross domestic product – the federal government needs to find creative ways to raise revenue. Raising personal tax rates is usually not a politically acceptable strategy, so it is expected the federal government would only consider that as a last resort. Even an increase in the capital gains inclusion rate could be seen negatively by the average voter. However, if the government can market a potential increase as a “taxing the wealthy” campaign, then the average voter might be more inclined to accept the strategy as a necessity for combatting the looming debt.


In January 2022, Canadian inflation surpassed five per cent for the first time since September 1991. With the price of gasoline, groceries, housing and most other housing and personal consumer goods increasing, an introduction of personal tax matters, including an increase in the capital gains inclusion rate, could exacerbate the situation.

Global uncertainty

The world is in a state of uncertainty right now. Omicron has shown us how vulnerable we are to variations in the coronavirus, and even though many provinces are starting to ease or remove restrictions, we are still not pandemic-free. The war in Ukraine has added a whole new level of uncertainty regarding many national and international policies such as sanctions, boycotts, immigration, humanitarian and military aid, to name just a few. A material tax policy change requires a certain level of grit, and it is not clear an increase in the capital gains inclusion rate is a position the Canadian government is comfortable taking during a time of such turbulence.

Finance bandwidth

As Jamie Golombek pointed out in Advisor’s Edge on Feb. 23, 2022, the Department of Finance is already implementing several previously announced tax initiatives. Given that Finance appears to have a backlog of current tax initiatives, it would be logical to conclude that any increase in the capital gains inclusion might need to be punted to another year.

Clearly, there are reasonable arguments on both sides of this issue, which is part of what makes the world of predictions so difficult. In the interim, if you are concerned about the chance of an increase in the capital gains inclusion rate, there are well-established tax strategies that can be used to optimize your position and minimize the negative impact an increase could have. Of course, this would be time-sensitive as these strategies should be implemented before the federal budget is presented. As of the date of publication, we have not received notification of the budget date.

Now, back to our Magic 8-ball to reveal the mystical answer:

“Reply hazy, try again.”