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The Trudeau government's decision to increase capital gains taxes, as outlined in the 2024 federal budget, has drawn significant criticism and concern over its potential negative impact on Canada's economic growth and investment climate. The move entails raising the inclusion rate for capital gains from 50% to 66.6% for businesses, trusts, and individuals with capital gains exceeding $250,000. One major issue highlighted is the "lock-in" effect caused by taxing gains only upon asset sale. This means investors delay selling assets, anticipating a reversal of tax policies under future governments. Consequently, the Trudeau government's revenue projections from the tax hike might be overly optimistic.
Moreover, higher capital gains taxes discourage investment and innovation, impacting economic growth negatively. Canada's GDP per person growth is among the lowest in the OECD, and business investment has declined significantly. Critics argue that raising capital taxes exacerbates these challenges. Despite the government's focus on taxing the wealthy, the broader impacts on economic growth affect all Canadians, lowering incomes and living standards. Previous governments recognized the negative impact of capital gains taxes and took steps to reduce them, understanding the importance of fostering a robust investment climate. In summary, the increased capital gains tax is seen as counterproductive to Canada's economic recovery and growth. Critics argue that it discourages investment, innovation, and economic competitiveness while contributing to a deteriorating fiscal outlook.
David Rosenberg, Founder of Rosenberg Research & author of the daily economic report sharply criticizes Canada's 2024 budget for its excessive spending, projecting a $53 billion increase over five years compared to the Fall Economic Statement 6 months prior. He highlights concerns about persistent fiscal slippage under Prime Minister Justin Trudeau's leadership, compounded by tax hikes that hinder business competitiveness. Rosenberg warns that the budget's structural deficits will lead to escalating public debt charges, exceeding $57 billion by 2026. The budget's expansion of program spending to 16% of GDP and lack of fiscal restraint raise further alarms. He argues against increased capital gains taxes, which he believes will discourage investment. Overall, Rosenberg predicts negative economic impacts and deems the budget a failure.
Former Liberal finance minister Bill Morneau expressed significant concern over the proposed increase in the inclusion rate on capital gains exceeding $250,000 in Finance Minister Chrystia Freeland's recent budget. Morneau, speaking at a webcast hosted by KPMG to react to the budget, described the move as "very troubling for many investors." He emphasized that during his tenure as finance minister, any notion of heightening capital gains taxes was staunchly opposed due to its potential negative impact on economic growth and investment.
Morneau stressed that the resistance against such tax increases was driven by a clear understanding of their chilling effect on economic expansion. He firmly believes that the proposed changes will hinder Canada's long-term goal of achieving robust economic growth through productive investment. This criticism from Morneau, a former member of the Liberal government, underscores the concerns within the business community regarding the budget's approach to capital gains taxation.
Over the last couple of days we've received many calls from concerned investors regarding realization of capital gains on inherited properties and estate sales. This new tax policy has created additional stress to investors and begs the question what happens next?
We are currently working with our clients to help them navigate through this new tax policy and plan for the future ahead.
If you have questions or concerns about your particular situation, please reach out to the team.
To read more about the 2024 Federal Budget, we recommend the iA Private Wealth Research Insight:
Sources:
Opinion: Higher capital gains taxes won’t work as claimed, but will harm the economy - The Globe and Mail
(April 16, 2024) - The Globe and Mail
David Rosenberg: The budget deserves a failing grade and will make the fight against inflation even harder - The Globe and Mail
April 18, 2024 - The Globe and Mail
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If you are an existing client, you may have noticed that we are asking a lot more questions lately. In a world where you are encouraged not to share more of your personal information than possible, this can seem a little intrusive. Rest assured, this information is necessary and required.
In part, these additional questions are due to a change in requirements from the securities industry regulator IIROC (Investment Industry Regulatory Organization of Canada). The new KYC (Know Your Client) regulations require us to provide more information regarding your current employer or the last employer you had before retiring. We are also mandated to update KYC at least once every 3 years.
Another part of the information gathering helps us in our quest to provide you with the best service possible. The more we know about you, the more we can tailor your financial plan. This approach to financial planning is commonly referred to as "holistic planning". So, what does that mean? Just like holistic medicine looks at every aspect of your physical wellness, holistic planning looks at every aspect of your financial wellness.
Creating a plan that is unique to you involves capturing all of your financial picture. It is a snapshot of where you are now and a depiction of where you would like to be. All of the information gathered, helps to create a roadmap of how to get you to your destination in the fastest, most efficient method possible. That doesn't mean that your plan is static. Sometimes your life takes a detour-- and just like your GPS-- we need to "recalculate". That is why annual "check--ups" are necessary.
We begin a plan by gathering all of your sources of revenue and all of your expenditures. Earning more money would be the easy answer—but is not so easy to achieve. The key to saving more often lies in reducing your expenses. This could involve helping you pay less taxes or spend less on interest or borrowing costs. Since mortgages are one of the largest expenses for all homeowners, we like to ensure that you get the best available rates by getting a competitive quote. We can even refer you to one of our independent experts.
Big banks rely on borrowers to take the path of least resistance and opt for the "auto-renew". By not exploring other options, you could end up paying thousands more in interest. That money could have gone into your investments and helped to grow your retirement funds.
Another area that we look at is risk reduction. How would your loved ones be affected if something were to happen to you? If your ability to earn income was impaired by accident, illness or death, that would have a huge impact on you-- and those close to you. Discussing insurance seems to conjure up a negative connotation for many people. It is somehow equated with being "sold" something unnecessary. Rest assured, the goal of insurance in a financial plan is not to make a sale. In most cases, insurance products are used to protect your loved ones and, in some cases, to help save taxes or pass on funds to you beneficiaries in a timely, tax-efficient manner.
How and where your funds are invested does play a big role in achieving your financial goals, but often times, advisors focus solely on this portion of your financial picture. Many of the online platforms claim that lower fees will ensure financial success. While it is true that lower fees can help you invest more, that is only a fraction of the story. Having reliable advice that is tailored to your situation can far outweigh any savings in fees. Not convinced? See what the experts at FPCA (Financial Planning for Canadians) have to say:
"Financial planning is more than budgeting, saving or the perfect investment strategy. It sets you on a course toward achieving your life goals through the proper management of your financial affairs. Canadians who engage in financial planning report significantly higher levels of financial and emotional well-being than those who don’t. They say they feel more on track with their financial goals and retirement plans, have improved their ability to save, are more confident that they can deal with life's challenges, and feel better able to indulge in vacations and other luxuries."
No matter where you are investing your money, you are paying fees. Some institutions are not required to disclose these fees as transparently as others-- and-- some of those same institutions offer no advice in return for those fees. This practice has resulted in class-action lawsuits filed against divisions of the six major banks and other major mutual-fund providers. (Read the entire article on the Toronto Star website). We believe that you should get your money's worth and always disclose our fees. We do better when you do better. That's why we ask so many questions-- and hope that you have lots of questions for us. We’re happy to answer.
If you are ready to feel more "on track" with your finances-- let's talk.
-Greg Frost
Contact the office and speak to Sharon to book a check-up or financial planning meeting:
519-741-8478 extension #3
(519) 741-8478
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