Canadian here and our new budget gets most of it’s new money from a new capital gains tax. Can you explain what they are, and surrounding context? Thanks!
In: Economics
Gains from investments (capital as in monetary assets).
I don’t know what it is in Canada, but in America there are short term (<1yr) and long term (1+ years) capital gains. Short term is taxed as ordinary income, long term is taxed with typically 3 brackets (0%, 15%, or 20%) depending on income, that’s just for federal so some states/localities may also have their own tax.
From what I see, Canada is raising the tax % (50% to ~67%) for those with >$250k CAD in capital gains. This will only effect the ultra rich (selling off $250k+ in stocks or it seems like $500k in home sale profits).
Taxes you pay on the gains of investments. Investment returns are not taxed as income but at a different rate. For some it can be zero.
In terms of stocks: you buy a stock for $100, a few months later you sell for $110. You made $10! Congrats! Well the government would like some of that profit.
Can work similarly with houses: you buy a house for $200k (assuming all cash), 10 years later you sell it for $300k. Great made a $100k profit, the gov. Wants their %.
This is a very simple explanation and it is a lot more nuanced and I’m not sure exactly what the new Canadian rules are. But this is my explanation from someone in the US.
Capital gains is money you make from an investment.
For example:
Let’s say you buy $1000 worth of shares in ABC Company.
The stock increases in price, so you sell your shares for $2000. That means you made $1000 in profit. That profit is considered a capital gain.
(This doesn’t just apply to stocks… you could have a capital gain on the sale of a business or some real estate – probably some other scenarios that I’m not thinking of. And there are other factors involved… to qualify for the lower tax rate you might have to hold the asset for a certain amount of time.)
I know nothing at all about Canadian tax law. In the United States, capital gains are taxed at a different rate than other forms of income – which is theoretically supposed to create an incentive for people to invest. (We could certainly argue whether that’s true, or whether it’s fair… but that’s not an ELI5 discussion.)
I’m guessing, based on your question, that maybe your government is talking about raising the tax rate on capital gains to generate new revenue.
Hope that helps.
Gains essentially.
In American stocks, if I buy Walmart stock for $1 and sell it for $5 that’s $4 of capital gain. And I’m taxed on it accordingly (aka most of it is gone)
It is a gain, or profit, on invested capital. If you invest in something and sell the investment for more than the initial cost and maintenance, that is a *Capital Gain*. You buy a beaver for one hundred dollars, you feed him fifty dollars worth of food, you then sell your beaver for two hundred loonies for a profit of fifty bucks Canadian (like ten bucks in real money)
We used to call it unearned income, before that we called it excess income. People thought by giving it an obscure name, they could convince people that it was basically a sin to tax the sacred profits.
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