Capital gains tax simulator

In Canada, only 50 per cent of capital gains income is currently included in taxable income. For an opinionated survey of issues that arise from this low rate of inclusion, see Michael Smart, 2021, “It’s time to increase taxes on capital gains.” Economist Jonathan Rhys Kesselman has proposed a reform under which the capital gains tax rate would increase, but only for gains in excess of an annual exemption level. Gains below the exemption level would remain subject to the current 50-per-cent inclusion rate – that is, they would continue to taxed at one-half the taxpayer’s ordinary tax rate. This simulation tool estimates how the Kesselman proposal would affect federal and provincial tax revenues and the distribution of tax burdens, for different values of the exemption level (between $0 and $50,000 per year), and for different inclusion rates (from 55 to 80 per cent).

Note: The data for this simulation are drawn from the longitudinal administrative databank, a 20 per-cent sample of all tax returns in Canada. The construction of the simulation sample is described in more detail in Michael Smart and Sobia Hasan Jafry, 2021, “Inequity and Inefficiency in the Tax Treatment of Capital Gains,” Canadian Tax Journal Vol. 69, No. 4, 2021, pp. 1157-1174.