Comment 112139

By CharlesBall (registered) | Posted June 09, 2015 at 16:27:38 in reply to Comment 112137

Capital gains taxes were implemented in the late 1960's early 1970's in Canada. Before that they did not exist. One reason they were created to stop people from failing to declare income by "over investing" in their business. The flip side is that if you tax the gain without considering the need to tie up capital over a long period of time, people will not invest in their business at all. It is a balancing used recognizing human (business) nature.

Say I buy a building to run my shoe store, and I pay 100 dollars for it. Inflation may drive the price up to 200 when I sell it. That is a gain. I pay on 50% of the gain. So I pay tax on 50. If my marginal rate is 50% I pay 25 in tax. However, keep in mind that my 200 (of which I now have 175 is now worth 1/2 of what is was when I bought the building. I have lost money by buying the building.

Arguably the government should not tax that at all (which is why it was never taxed before 1970.) But people were taking advantage of the rule by pumping their income into capital and thereby avoiding taxes.

If you taxed capital gains exactly the same way that you taxed income, the economy would collapse. No one could invest in any capital projects because over time they would all lose money.

Comment edited by CharlesBall on 2015-06-09 16:27:56

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