Justice Minister Arif Virani has come under fire for a misleading video he posted to social media to “explain” to Canadians how they would be affected by the Liberals’ increase to the capital gains tax.
“People in Parkdale–High Park have talked to me about the fact that they might have a second property, like a cottage,” said Virani. “First of all if you pass on the cottage to someone in your family, there is no capital gain that is incurred.”
However, Virani’s claim was swiftly debunked by Conservative MPs Michelle Rempel Garner and Philip Lawrence, who called the video “extremely misleading.”
“There is no special definition for ‘family cottage’ within federal tax provisions. The fact is that if someone owns a second property that they use for recreation unless they pass on that property to their spouse or common-law partner, capital gain is usually incurred,” said Lawrence, who is also a tax lawyer.
“Said differently, if that property is gifted or sold to anyone other than a spouse or common-law partner, someone will likely have to pay capital gain taxes on its increased value, so the Liberal’s new tax increase could apply to them.”
Another claim that Virani made was that capital gains of less than $500,000 won’t be affected by the new tax increase.
“If you do sell the cottage outside of your family, and you purchased the cottage for $300,000, and sell it for $800,000, there’s absolutely no change that affects you,” Virani said.
Canadians are each given a $250,000 exemption from the increased inclusion rate under the Liberals’ new capital gains tax changes, but Lawrence called Virani’s cottage sale analogy an exercise in “fudging the truth.”
That scenario would only apply if a property was equally owned by two spouses who were able to combine their $250,000 exemptions together at the time of the sale.
That is often not the case, however, as properties are often owned by a single person. Also, if a spouse dies, there would be no opportunity to combine exemptions.
“So, in Mr. Virani’s example, $250,000 could be taxable at the Liberal’s increased rate of 66.67%,” said Lawrence.
Furthermore, Lawrence said that Virani was conflating the inclusion rate, meaning the amount of the gain that is taxable, with the income tax rate, the rate at which the gain is taxed.
“This discussion is complicated enough without the federal minister of justice spreading misinformation,” said Lawrence.
In Virani’s now deleted video, he also went on to compare the new capital gains tax increase to that of ones in New York and California, claiming it was still lower than in those places.
Lawrence said this was like comparing “apples and oranges.”
“The U.S. rates Mr. Virani referenced are state taxes only, which are significantly less than both U.S. federal tax and Canadian federal tax rates,” said Lawrence. “For instance, the total capital gain tax on an asset sale in California (the state with the highest tax) is less than 14%. In Ontario, that rate will increase from 27% to around 31-32%.”
A spokesperson for Virani said the video was deleted to “minimize confusion.”
“There was some nuance in the video posted by MP Virani that would benefit from additional context, so we decided to take it down to minimize confusion,” the spokesperson said in a statement. “This is the right thing to do. I wish that the Conservatives who peddle disinformation daily, like claiming that 50% of people impacted by the capital gains tax changes make under $100,000 a year, would do the same.”
Virani’s office reiterated the government’s position that the capital gains changes are about “fairness for every generation,” claiming just 0.13% of Canadians will pay more in tax on capital gains in a given year because of the change.
“We’re asking the wealthiest Canadians to help pay their fair share.”