To pay for sharply higher spending in Budget 2024, the federal government turned to tax hikes on wealthy individuals and corporations. The Finance Minister has committed to increasing the inclusion rate on capital gains realized annually. As much as $19.4B in revenues are expected to be brought in over the next five years as a result.

About 300,000 corporations declare capital gains in Canada, which is roughly 12.6% of the over 2M businesses operating in the country. But not all industries will be impacted equally.

Unfortunately, data is not available in Canada to determine the proportion of capital gains in taxable corporate income by industry. Still, our analysis points to some of the sectors that are most likely to feel the pinch of the new capital gain measure, led by the financial sector, as well as real estate and larger corporations in the mining and oil and gas, manufacturing, and information and cultural sectors.

This is hardly the time to introduce measures that will weigh on business investment in Canada. As we have written about extensively, Canadian labour productivity is in decline, and was essentially stagnant even before the recent population boom.

Canada has a productivity problem, and it's unclear how reducing Canada's relative tax advantage will reverse this slide, as investment in innovation is urgently needed. In all, while revenues will probably rise as a result of the new tax measures, these could come at an economic cost.