There has been chatter for a while now about whether the inclusion rate with respect to the taxation of capital gains might be increased in the federal budget to be tabled on March 22, 2017 by Finance Minister Bill Morneau.
The fact is, of course, that no one knows except the Prime Minister, the Finance Minister and their inner circle. We have spoken to a number of people and have received many different responses. Some have dismissed the rumours out of hand, and say it is very unlikely that any changes will be made at this point. Others think the inclusion rate may be increased from half to two thirds, while some think any increase will be to three quarters.
Obviously any ratcheting up of the inclusion rate will make the heavy tax burden that we bear in this country even more burdensome. I have heard some commentary to the effect that this is something that only affects the “rich”, so who cares? To that, let me say two things: first, the current federal government seems to view anyone making $200,000 a year as rich. If you have a family and live, for example, in Toronto, you are NOT rich. Second, if this tax is increased it will not discriminate based on investment portfolio size. It will hurt all of us who invest, including those just beginning to build a portfolio.
Given that equity markets have, in general, been trending up for the last eight years, there are a lot of people with a lot of capital gains. While it is true that for many investors they have a considerable percentage of their holdings in registered accounts, still there would be much exposure with respect to outside holdings. No doubt people in Ottawa are looking at that market performance and doing some number crunching. If this change does come to pass, the result will be that it will take wealth from all of us and transfer it to government. I believe that we, as individuals, will put that money to better use than would any government, regardless of party.
While there is much uncertainty surrounding whether there will or will not be an inclusion rate increase, there is equal speculation surrounding when it would be effective if, in fact, it were to be put into place. I think that in most cases, budget provisions are effective as of the budget date. Some, though, have been retroactive to January 1 of the year of the budget, and some others have been effective at a date in the future. My view on this is that to make a change retroactive would be grossly unfair. That said, “fairness” is not a very important word, I think, when it comes to tax legislation. If this change does take place, the most equitable result would be that a date in the future is set that would allow all taxpayers to sort out their own unique situation and act in their best interests given the change.
So, in conclusion, I think it would be prudent for anyone who is contemplating making dispositions in the near future (or even this year) that would result in a taxable capital gain, to make those dispositions prior to the budget.
What to do in this case comes down to a very personal decision. We are all quite different. The point of this article was simply to make you aware of what might be happening later in March. I wish there were a right answer, but there isn’t.
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.
This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation). The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.
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