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March 8, 2016 | The fleecing

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.


Will T2 goose capital gains taxes in March 22 budget?

What a strange place this is. Reader surveys have told us a big proportion of the people who furtively read this blog in the can, on the elevator or while pretending to do something useful, are rich. One percenters. Before the last federal election we found a majority were conservatives (even though they hated the leader). They make big money. They have mucho assets.

But a quick read (if you can stand it) of the comments section also shows needy, whiny millennials, jealous genXers, moldy basement-dwelling renters and an alarming number of lefties who espouse social justice over capitalism, blame Boomers for an imperfect world, decry central banks, think markets are rigged, love tax-and-spend governments, hate the 1% and worship T2.

In other words, if we ever have a GreaterFool picnic, it’ll be pure carnage. Blood everywhere. So we won’t.

Looks like we’re about to embark on another issue promising to divide these groups even more than did the new eat-the-rich Trudeau tax bracket or the neutering of the harmless TFSA. Hey, here’s Paul, a rich guy with concerns the Liberals are about to stick it to investors with a new capital gains tax grab:

“Very long time reader on the blog and just wondering what you think the odds are of an increase in capital gains tax from current 50% to 75% or 100%. Would it be immediate or retroactive to beginning of year which would seem to drastically unfair as I have been invested for 10 years in some stocks with large gains.

“This knee jerk increased double tax could cost me a ton of cash (I know, big tears for your capital gains) but it makes me think I could have done just as well moving up in housing market when you consider no tax on capital gains of housing.”

For the record, when you invest in an asset that rises in value, it’s considered a capital gain. Because risk is involved (as opposed to holding a GIC or earning money from rent or a job), the tax system rewards investors. Half the gain is tax-free. The other half is taxed at one’s marginal rate. These days that makes the max cap gains tax about 26%. For most people, it amounts to roughly 15%, which means you keep 85% of the gain.

The lefties hate this (along with the dividend tax credit). They say all income, regardless of where it comes from, should be fleeced equally. So income from a job, from investing in a  high-risk Internet start-up, from a GIC at the bank, from renting out your basement, from your personal corporation – should be hit the same way, at the same rate. They oppose a tax system trying to guide people into higher-risk investments (that often lead to job creation), seeing this as just another sop to the wealthy.

The T2 gang was silent on any change to cap gains in the election platform, but a few days ago released a report (which was linked here) fueling the ire of the downtrodden masses. The Department of Finance claims the preferential tax treatment of capital gains ‘costs’ Ottawa about $12 billion a year in revenues that would accrue if they were taxed as regular income, like working at a Timmies.

Moreover, tax dude and advisor Jamie Golombek has mashed some numbers showing  75% of capital gains were claimed by people making over a hundred grand a year (the top 8%) and half by folks earning over $250,000 (yes, the 1%ers). That puts this issue in the crosshairs of a government that has already declared open season on the successful with (a) a new tax bracket, (b) the TFSA contribution fizzle and (c) coming rules to gut tax advantages of personal corps (the ‘doctor tax’).

So, this is our Bernie Sanders moment.

That avowed socialist (the kids love him, too) has as a part of his US presidential campaign the elimination of the capital gains advantage, bloating the top rate from 23.8% to 64.2%. But, alas, Bernie is toast. Americans – their 401k retirement plans stuffed with US equities – would never vote for that.

And neither did we, of course. As mentioned, the Liberal platform made no mention of diddling with taxation on investment income. For good reason. Swelling capital gains taxes here could divert a lot of risk capital to the US, since that can happen with a few mouse clicks. It would seriously disadvantage Canadian start-ups (which employ a lot of millennials). It would obviously impact the equity market and the hard-hit energy sector (which employs legions). “You could decimate an industry that’s already on its knees,” said one energy CEO this week. “We just hope the government is truly informed on this issue.”

Don’t we all?

In fact, the greatest revenue cost of the federal government in this area comes from not taxing the capital gains people make when selling their houses. This includes all those folks in the GTA and YVR who have made heaps of money without any effort, creating no new jobs nor adding to any payroll, who may have sold out to evil Chinese guys and whose tax-free profits added significantly to the wealth and generational disparity now gripping the nation. Besides, by winning the house lottery, tax-free, many of these sellers have simply saddled their (young) purchasers with a lifetime or debt, not tax-deductible. Suck. Blow. Oh Canada.

If the people really craved fairness – and affordable houses  –  they’d demand such leadership.

But don’t hold your breath. Just your nose.

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March 8th, 2016

Posted In: The Greater Fool

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