Will the capital gains tax change affect you? Only if you’re part of Canada’s 0.13 per cent.

While the business lobby is trying to spin the reduced tax break on capital gains into a middle class issue, it isn’t.

The capital gains tax increase will only affect 40,000 people—out of 41 million Canadians. And it only affects you if your main source of income is buying and selling real estate, stocks and bonds. That’s only 0.13 per cent of Canada’s population; a rarified group of people. This change is targeted and will have little to no impact on the average Canadian or the middle class. It won’t apply to Canadians selling their primary residence, contributing to their RRSP or TFSA or saving in a pension plan.

Out of just under 41 million Canadians, this tax change will affect around 40,000 people—who, on average, make $1.4 million a year.

Here are some examples of how it won’t affect the vast majority of Canadians.

Will the capital gains tax changes affect my real estate investments?

Q: I bought my house for $300,000 and it’s now worth $1 million and I have to sell it. Would this affect me?

A: NO. Not only does this capital gains tax change not affect you, but any capital gains on your principal residence are completely tax free.

Q: I bought my house for $300,000 and it’s now worth $1 million and I want to give it to my children to live in when I die because rent is too expensive these days. Would this affect me or them?

A: NO. This tax change will not affect you and any capital gains on your principal residence won’t be taxed either. You can give that residence to children without any transfer or inheritance tax on you or your children. If it’s the children’s principal residence for some time and they sell it, even at an unlimited profit, that sale will not be subject to a capital gains tax.

Q: I bought my house for $300,000 and it’s now worth $1 million. I left my house to my children in my will. What if they decide to sell it? Would this affect them?

A: NO. Any capital gains on your principal residence will not be taxed. The transfer of your principal residence to children will not be taxed. Canada has no inheritance tax.

Q: I’m older and my house is worth much more than I bought it for in the 1980s. What if I have to move into supportive care but I want to sell my house and give the proceeds to my children? Would this capital gains tax change affect me or my children?

A: NO. Any profit made on the sale of a principal residence is not taxed and the proceeds can be gifted to anyone without any tax implications for you or them.

Q: I move every couple of years for work. Each house I’ve lived in has doubled in value. I bought my latest house for $1 million and it’s now worth $3 million but I have to move again. Would this capital gains tax change affect me?

A: NO. As long as you’ve lived in these various houses for a year or two each and they were your principal residence, any real estate profits you made while living in them are completely untaxed.

Q: My partner and I bought a cottage a few years back for $500,000. It’s now worth a million. Would this capital gains change affect me?

A: NO. The capital gains of $500,000 on this sale would get split between the owners or $250,000 apiece. This stays below the $250,000 threshold for the tax change.

Q: I’m a massive real estate investor with 10 condos whose purchase prices were all $500,000 (although I only ever put 10 per cent of my own money down and the tenants paid off the rest). Today, they’re all worth $750,000 (a 50 per cent gain)— making me worth $7.5 million. I want to start selling them to pay for retirement. Would this affect me?

A: NOT NECESSARILY. If you sold one condo a year for 10 years, the capital gains—the change between the purchase and sale price—would only be $250,000 and so your tax situation would be unchanged due to this budget. If you sold them all at once, then you would be over the annual threshold and owe more in taxes.

Q: I’m a tech entrepreneur and I just sold my tech business to Google for $3 million dollars. Would this capital gains tax change affect me?

A: NO. You would not be affected by the capital gains tax change. In fact, the latest federal budget created an even bigger new tax loophole for you: that means you’ll pay even less tax. The new Canadian Entrepreneurs’ Incentive lowers the capital gains inclusion rate to 33 per cent for up to $2 million in the sale of a tech business. Combined with a complete exemption of taxation from the sale of a small business of up to $1.25 million, it substantially reduces or eliminates taxes owing on the sale of tech businesses up to $3.25 million.

Will the capital gains tax changes affect my RRSPs, TFSAs and pension investments?

Q: I have $500,000 in my TFSA account. Would this affect me?

A: NO. That’s a pretty large nest egg and you pay zero tax on capital gain profits made in your TFSA.

Q: I have $1.5 million in my RRSPs. Would this affect me?

A: NO. RRSPs are unaffected. Capital gains in your RRSP aren’t taxed.

Q: I have a company pension plan that is going to provide me with a $100,000 a year pension. Would this affect me?

A: NO. All pension plans are completely unaffected. A pension plan owes zero tax on any capital gains it makes managing your pension assets.

Q: I have $1 million in my RRIF and I need it to fund my retirement. Would this affect me?

A: NO. RRIFs are unaffected. Any capital gains you make in your RRIF aren’t taxed at all.

Q: I bought $100,000 worth of stock outside of my RRSP and TFSA and it shot up to $350,000 this year, a 250 per cent return. Would this affect me?

A: NO. The change only affects people who declare more than $250,000 in gains in a single year. Here, the gain is exactly that amount: $350,000 – $100,000 = $250,000. You will not be subject to the capital gains tax change.

Q: I bought $500,000 worth of stock outside of my RRSP that doubled in value, making me a millionaire. I want to sell it all. Would this capital gains tax change affect me?

A: NOT NECESSARILY. Incredibly, if you sold half the shares on December 30th of one year and the other half of the shares on January 2nd of the next year, ie. two days later, you wouldn’t face the higher inclusion rate. In each case, the gain would be $250,000—and the capital gains change only kicks in if you’re making more than $250,000 from such sales in a single year.

The bottom line

When it comes down to it, this measure is about as targeted as they come. It will likely affect around 40,000 people per year—0.13 per cent of Canadians—and could be a key measure in raising funds so that the feds can finally begin taking concerted action to address housing affordability. For a long time, the federal tax system has allowed for the wealthiest Canadians to pay lower taxes than the average worker—and this measure begins to address that fundamental disparity.

It also sends a clear message to the investors who have most profited from the housing affordability crisis—that, after having profited from the crisis, they will also have to contribute a small part of their gains to the solutions.