- the source for market opinions


March 14, 2016 | Just a Phase

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

BUMS modified

Just seven more sleeps until the big budget next Tuesday, when we get to see if there’s more to modern Liberalism than a really bitchin’ selfie.

As you might imagine, rumours are flying. The latest is that Ottawa’s about to boost the capital-gains lifetime exemption to $1 million (from the current inflation-adjusted $824,000). That would mean a small business owner could sell out and pocket half a million tax-free, sending socialism supporters into cardiac arrest.

Likely? Not unless is also comes with an expected smack down on small corps themselves. You might remember the Lib campaign promise: “we will ensure that Canadian-Controlled Private Corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses.” That could signal the end to having kids or spouses on the payroll, passing dividend income to family members who are shareholders or even taking a significant amount of income from your own shop in any other form but fully-taxed salary. But, who knows?

In addition, as detailed here a few days ago, there’s talk of a hike in capital gains tax. Currently half of all profits earned on the sale of assets that have risen in value (from an investment condo to an ETF, stock, family cottage, mutual fund or apartment building) are free of tax with the other half taxed at your marginal rate. Soon that tax could apply to 60% or even 75%.

Income-splitting will officially be toast, a $2 billion hit to single-income families now employing it to even out income between a working parent and one who stays at home.

Stock options are also in the crosshairs. Look for new legislation which will fully tax the gains made this way, except for modest amounts (up to $100,000) which will be exempted. The high-tech industry especially has warned this targeted tax hit will do serious damage to the process of finding capital and attracting talent. Say the Libs: “The Department of Finance estimates that 8,000 very high-income Canadians deduct an average of $400,000 from their taxable incomes via stock options.” BTW, ‘very high income’ in Canada means over $200,000.

There’s more.

In addition to creating a new tax bracket for those people making over two hundred grand a year, the successful can expect other measures. The Liberals announced they are “conducting an overdue and wide-ranging review of the over $100 billion in increasingly complex tax expenditures that now exist, with the core objective being to look for opportunities to reduce tax benefits that unfairly help those with individual incomes in excess of $200,000 per year.” You may recall that I linked a Department of Finance report on ‘tax expenditures’ like RRSPs, the cap gains tax, allowing union dues to be written off, or not taxing groceries or the profit people make selling their homes. It alll adds up to about $100 billion a year. We have no idea what will be zapped, but the government says it wants to clear $3 billion.

Of course, there’ll be lots of new spending. Money for temporary youth employment, aboriginal communities, a new and richer child care regime, slightly more for seniors at the poverty line, the $8-per-week middle class tax cut and a mess of money to build stuff, like they did in Japan. The budget shortfall is projected to be $10 billion in 2016 and most economists figure it will be double within a year. But, as you know, few care. Debts and deficits aren’t sexy any more. Nobody notices.

Fair enough. The legion of T2 adherents would also elect Bernie Sanders if he was running here. These are the days of a shared economy, when it’s cool to tax the wealthy until they squeal because the world’s become a place of inequality and unrequited expectations. Governments promising to redistribute wealth are adored by those without enough, just as they’re reviled by those with a pile. It’s likely we’re about to see the taxiest and spendiest budget in a generation, one that it will be cheered in the Starbucks of the nation.

Meanwhile, guess how many more people there were living in Vancouver last year between the ages of 25 and 44? None. In fact, 1,300 fewer – the biggest decline in almost a decade. You know why. It’s now impossible to raise a family, buy a house or have a life on a professional income in that city, as is rapidly becoming the case in Toronto. Will the budget help?

There are things an activist government could be doing to make life more hopeful for everyone. Calling people out for being achievers ain’t one of them. Fortunately, it’s just a phase.


STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

March 14th, 2016

Posted In: The Greater Fool

One Comment

  • Avatar Robert Laden says:

    I looked through the Department of Finance’s report on “tax expenditures” and they left out the biggest “tax expenditure” of them all, namely, after tax income. Canada’s taxpayers have many billions of dollars left over, even after they pay their taxes. That’s a huge source of potential tax money that the government is leaving on the table. What were the people in the Tax Department thinking to leave all that money in taxpayer’s pockets?

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.