Deferring capital gains taxes makes sense when investors rebalance their portfolios in search of better returns, according to a C.D. Howe backgrounder released today.

In Removing the Shackles: Deferring Capital Gains Taxes on Asset Rollovers, Jack Mintz, president and CEO of the C.D. Howe Institute and Thomas Wilson, senior advisor, Institute for Policy Analysis, University of Toronto, make the case for implementing a deferral of capital gains taxes and provide a model to achieve it: the Capital Gains Deferral Account (CGDA).

The model would allow taxpayers to shift their portfolios from poorer to better performing assets, while deferring the tax on any capital gains. The benefits would be aimed primarily at low- and middle-income Canadians who have modest amounts of taxable capital gains. The annualized revenue cost to federal and provincial governments is estimated at $425 million, with a lifetime limit of $150,000 invested in the CGDA.