Which Industries Stand to Lose the Most from the Budget 2024 Tax Hikes?

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. The greater the assets, the greater the risk that some of these industries could be affected by the changed inclusion rate for capital gains. Whether it’s holding companies or operating companies, those larger corporations selling subsidiaries, parts of their business or sizeable assets, such as in a business transfer transaction, will likely be impacted by the change.

Unfortunately, data is not available in Canada to determine the proportion of capital gains in taxable corporate income by industry. But when it comes to corporate taxes paid, one industry stands out, and that’s manufacturing. In Canada, the manufacturing sector has accounted for 20% of corporate taxes paid in the past few years. And while not paying nearly as much tax per corporation as mining and oil and gas extraction, manufacturing is second only to it.

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.