The changes proposed by the liberals to the capital gains tax were passed in the House of Commons on Tuesday, paving the way for the federal government to raise the amount of tax Canadians pay on the sale of assets or investments.

The changes, which will take effect on June 25, will raise the inclusion rate for capital gains to 67 percent for Canadians earning more than $250,000 from stocks or secondary properties, up from the current rate of 50 percent.

Since it was first proposed in April, many business groups have criticized these proposals, including a joint letter from the Canadian Chamber of Commerce, the Canadian Federation of Independent Business, Canadian Manufacturers & Exporters, and several other organizations.

The letter stated that this action would limit opportunities for all generations and make Canada a less competitive and less innovative country.

To counter this backlash, Prime Minister Justin Trudeau released a video on social media on May 13, explaining that the changes would only affect "less than one percent of people."

Trudeau said in the video: "At a time when the wealthy are getting richer, I think it's fair to ask these individuals to pay a little bit more." He also claimed that the changes "will generate nearly $20 billion in new revenue" - $19.7 billion over five years, to be exact - which will go toward investments in affordable housing.

But how accurate are the government's claims? Will these proposed changes really provide that amount of new revenue for the federal government? Will it really be Canada's wealthy who will pay their "fair share" through the new tax increase?

Will the government really be able to generate $20 billion in tax revenue?

Joseph Steinberg is an associate professor in the Department of Economics at the University of Toronto. With a Ph.D. in economics, Steinberg's research uses quantitative models to study public finance and policy.

In an interview with CTVNews.ca, he stated that these types of policies are unlikely to generate much tax revenue, and that they would be significantly less than the nearly $20 billion the government claims it could achieve.

"I don't think this specific policy is likely to be successful," he said. "Let's assume this policy affects less than one percent of Canadian households, or the very wealthy. The problem with this is that they are exactly the same number of households that engage in offshore tax evasion and other forms of tax evasion."

Through years of research, Steinberg says that bills and legislation similar to this only affect "moderately wealthy" Canadians - those who we might consider upper middle class, who own two cars, and may own or share a cottage - rather than the wealthy that is being targeted.

Imagine someone with an investment property or a cottage. They might not sell it this year or next year, but they will sell it sometime in the future. If that sale exceeds $250,000, that household will be affected. Very few Canadians earn over a quarter of a million dollars a year in capital gains, but the percentage of people who will achieve that at some point exceeds one percent.

Steinberg goes further, saying that the wealthy often like this type of policy because "they have ways to avoid it."

He continued: "If the goal (of the proposal) is to reduce inequality, these types of policies will not help."

What can the government do instead?

Steinberg states that these types of proposals do not really address one of the root causes of wealth inequality, which he says is tax evasion.

"Given what my research has found regarding policies aimed at increasing taxes on the wealthy... and since we are not enforcing any rules against tax evasion and tax avoidance, it's unlikely that these types of policies will lead to a significant increase, if any, in tax revenue."

The Canada Revenue Agency (CRA) estimates that Canada loses nearly $3 billion annually in foreign investment, which is close to the amount the government expects to bring in each year with the changes. Steinberg reiterates that this is where the government can make the wealthy pay their fair share.

"I would recommend, instead of this policy, strengthening the enforcement of tax evasion by the wealthy. And giving the CRA more resources to review the accounts of truly wealthy families, and more resources to combat money laundering."

"The return on this investment would be very high for the government."

Criticism and praise for the proposals

Others have criticized the proposals, including some in the tech sector. When Deputy Prime Minister and Finance Minister Chrystia Freeland introduced the proposal to Parliament on Monday, Shopify CEO Harley Finkelstein shared a critical post on X, calling the move a "tax on innovation and risk."

He wrote, "Investing in new products or ideas is inherently risky. Entrepreneurs need incentives, not penalties, to push (Canadians) forward." "This policy will stifle risk-taking and tax Canadian ambition at a time when we need more entrepreneurs, not fewer."

But while the liberals emphasize that the proposal targets the wealthiest people in the country, Steinberg says it's impossible to ignore the amount of pushback it has received from those in different tax brackets.

He said: "I think it's fair to say that Trudeau and his government are not very popular, and it's unlikely that people will be inclined to view any kind of policy his government proposes positively."

Steinberg also notes that rising living costs and inflation are at the forefront of Canadians' concerns, and that this proposal may not be something they see as beneficial in their everyday lives.

Not everyone believes this policy would stifle innovation. John Shell is the president of Social Capital Partners, a nonprofit focused on increasing wealth concentration. In a post on his LinkedIn page, he argues that the capital gains tax was 75 percent in the 1990s.

He wrote, "(The 1990s) are also the decade that everyone says was the best for productivity, growth, investment, and everything else." "All productivity people love the '90s. The cut in the rate (to 50 percent in October 2000) had no impact on productivity or investment, but it was certainly great for the super wealthy, and certainly great for me when I sold my companies in 2020."

Several groups representing teachers have also spoken in favor of the proposal, saying it could make a difference for future generations of Canadians.

The executive director of the CTF, Cassandra Hallet, said in a post on X, "The Canadian Teachers Federation (CTF) is pleased to support changes that contribute to the federal government's ability to make investments that enhance the public good, such as the National School Food Program, child care, poverty reduction, and more."

Karen Littlewood, president of the Ontario Secondary School Teachers' Federation, echoed this sentiment in a post on X.

She wrote on X, "Demanding tax justice is not a bad thing. Asking the wealthiest 0.13 percent of Canadians to pay a little more so that all Canadians can have access to pharmaceutical, dental, and school nutrition programs is a good thing."