Federal Budget 2017 - March 22

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Shurville
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Federal Budget 2017 - March 22

Post by Shurville » 07 Mar 2017 16:03

If as rumoured they decide to increase the capital gains tax would it be retroactive at all?

Modified subject and content to broaden this thread to budget discussion overall
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AltaRed
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Re: Liberals increase to Capital Gains Tax

Post by AltaRed » 07 Mar 2017 16:49

Shurville wrote:If as rumoured they decide to increase the tax would it be retroactive at all?
Been discussed elsewhere, but wait another 15 days and it will become clear. My bet is no retroactivity IF a change in inclusion rate was to even occur. It is the tax professionals in their blogs that have been beating this drum mostly - to generate advisory fees maybe?
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Re: Liberals increase to Capital Gains Tax

Post by ghariton » 07 Mar 2017 19:34

AltaRed wrote:
Shurville wrote:If as rumoured they decide to increase the tax would it be retroactive at all?
Been discussed elsewhere, but wait another 15 days and it will become clear. My bet is no retroactivity IF a change in inclusion rate was to even occur. It is the tax professionals in their blogs that have been beating this drum mostly - to generate advisory fees maybe?
I believe that a lot of high net worth people are talking about it. Heck, even I hear of it, and I'm far from being high net worth. In particular, lots of lawyers seem to be concerned. But then, lawyers tend not to have pensions. Instead, they have savings, and lots of uncrystalized capital gains.

Of course, there was a panic about the inclusion rate before last year's budget too.

If the inclusion rate is increased, even if not retroactively, there could be a significant immediate impact on the prices of Canadian equities. In particular, growth stocks would become relatively less attractive, and dividend payers relatively more attractive -- unless they monkey with the dividend tax credit too.

All too complicated for me. I'm just glad that I distributed all the retained earnings in my corporation and dissolved the corporation last year.

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Re: Federal Budget 2017 - March 22

Post by optionable68 » 07 Mar 2017 21:46

I've never seen such a discrepancy in opposing views on capital gains taxation

Conservative leadership candidate Maxime Bernier suggests capital gains tax reduces Canada's competitive positioning, hinders redeployment of capital into new innovation, and impedes job growth. As such, his platform is to eliminate capital gains tax altogether to propel Canadian GDP growth.
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Re: Federal Budget 2017 - March 22

Post by ghariton » 08 Mar 2017 00:27

Eliminating tax on capital gains would bring us back 45 years. Presumably the tax on inheritance would also be reintroduced.

I have some sympathy for Bernier's position. In fact, I would like to eliminate all income taxes, corporate and personal, and rely on consumption taxes and user charges instead. And yes, these could be designed so as to preserve whatever degree of progressivity one thinks fit.

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Re: Federal Budget 2017 - March 22

Post by longinvest » 08 Mar 2017 10:11

Actually, I wouldn't mind too much a 100% inclusion rate if the capital gain was calculated in inflation-adjusted terms. In other words, I buy $100 of stuff in 2017. In 2027, 10 years later, I sell the stuff for $150. Meanwhile, CPI has increased from 129.5 to 157.9. The inflation-adjusted capital gain would be $150 - ($100 X (157.9 / 129.5)) = $150 - $121.93 = $28.07.

Of course, the same principle should be extended for taxes on interest and dividends.

For simplicity, the CPI would be considered on an annual basis (not on a monthly basis). The CRA could publicize each year's CPI for tax purpose (which would be the average total CPI for the year, as published by Statistics Canada). That would be simple enough and would eliminate the "taxflation" of our current tax system. As things currently stand, it is mostly pointless to save money and invest into fixed income outside of tax shelters as it leads to negative after-tax real returns. Or, maybe that's what the government wants: that we don't save and invest outside of tax shelters; that we spend it all today so as to become as dependent as possible on the government in the future?
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Re: Federal Budget 2017 - March 22

Post by fundamental » 08 Mar 2017 11:59

optionable68 wrote:Conservative leadership candidate Maxime Bernier suggests capital gains tax reduces Canada's competitive positioning, hinders redeployment of capital into new innovation, and impedes job growth. As such, his platform is to eliminate capital gains tax altogether to propel Canadian GDP growth.
+1 :thumbsup:
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Re: Federal Budget 2017 - March 22

Post by ghariton » 08 Mar 2017 12:41

longinvest wrote: As things currently stand, it is mostly pointless to save money and invest into fixed income outside of tax shelters as it leads to negative after-tax real returns.
It's called "financial repression", and was government policy for most of the three decades after World War II. It had the neat effect of making government debt manageable (on the backs of savers, but that's another story). It also stimulated the economy, although governments were probably not big fans of fiscal policy until the mid-1960s.

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Re: Federal Budget 2017 - March 22

Post by gobsmack » 08 Mar 2017 13:34

ghariton wrote:I would like to eliminate all income taxes, corporate and personal, and rely on consumption taxes and user charges instead.
I am also in favour of that. Right after the financial crisis in 08/09, there was some talk about a Financial Transaction Tax. At the time, most of the conversation was targeting high-frequency traders but the concept can be applied more broadly as a Bank Transaction Tax. Such a tax is incredibly easy to collect and virtually impossible to evade given that the computers handling financial transactions automatically take care of collecting the tax. I like the idea of replacing all income taxes with something like this.

From what I have read, the main drawback of such a tax system is the accumulative weight of the tax in the case of industries that rely on a very long stream of vendors in its supply chain. But given the complications of enforcing the current tax system, I can't imagine that it would be more difficult to find a solution for this problem then to do what we do today.

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Re: Federal Budget 2017 - March 22

Post by patriot1 » 09 Mar 2017 08:39

(Bernier's) platform is to eliminate capital gains tax altogether to propel Canadian GDP growth.
Isn't the housing bubble big enough already? I think there's a case for eliminating capital gains tax on Canadian corporations, but eliminating it across the board would encourage speculation in unproductive assets paid for with borrowed money. He should know better.

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Re: Federal Budget 2017 - March 22

Post by Mordko » 09 Mar 2017 22:10

Actually, right now, houses (as primary residence) = zero capital gains tax. That's one of the major reasons behind the current bubble - people use houses as their investment vehicles because of government-induced distortion.

Once the stock market gains are no longer taxed, money would stop speculating on non-productive illiquid assets like houses and move into assets with better long-term returns.

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Re: Federal Budget 2017 - March 22

Post by AltaRed » 10 Mar 2017 00:56

I agree. Investors would be more likely to put their money to use in capital markets than continuously putting money into the abyss of a house. We have it bass ackwards with our current system.
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Re: Federal Budget 2017 - March 22

Post by twa2w » 10 Mar 2017 13:26

AltaRed wrote:I agree. Investors would be more likely to put their money to use in capital markets than continuously putting money into the abyss of a house. We have it bass ackwards with our current system.
But isn't there already a crap load of money in the capital markets? Isn't there another thread talking about the extreme valuations in the equity markets.
What would happen if even more dollars suddenly started chasing stock prices. From one bubble to another. :D

Actually I don't think there would be much more money chasing stocks. Most real estate is highly levered. I doubt the average potential home buyer will be disuaded from buying a home or convinced to put their down payment funds into the stock market rather than continue to save. And even less likely to lever their investments.

People buying prin residences do so for other reasons than investment. They do get antsy when RE markets get hot but a cooling real estate market or different tax treatment is unlikely to make people stop buying prin residences and invest in the stock market. Lower real estate prices may mean a little more savings to potentially invest but not much.

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Re: Federal Budget 2017 - March 22

Post by patriot1 » 10 Mar 2017 20:08

If you're talking about the average person, it should also be pointed out that the great majority don't fully use the tax-free vehicles available now, namely RRSPs and TFSAs, so eliminating the capital gains tax isn't going to make any difference to them. Same goes for non-taxable entities like CPP / pension funds, and foreign investors in the stock market who aren't taxable on capital gains anyway.

As the previous posted alluded, I think the main reason people aren't putting more money in stocks is that they think their own house, or a second house, is a "better" or "safer" investment.

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Re: Federal Budget 2017 - March 22

Post by SQRT » 11 Mar 2017 02:05

Interesting article in the G&M Friday about transferring appreciated stock to your spouse in order to generate optionality surrounding when a cap gain is realized. I am seriously considering doing this.

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Re: Federal Budget 2017 - March 22

Post by newin96 » 11 Mar 2017 15:06

We have our fingers crossed that they aren't changing the CG taxable inclusion rate...
The company I work for announced it was sold and closing Q1 this year - so my employment (1 wage earner family) is at risk.
Based on these circumstances we proactively decreased our investment risk and sold our rental property (didn't want to risk not being able to pay that mortgage - if everything went bad).
So we sold in December but delayed closing until May, as we were concerned about the tenant (young family) and wanted to provide time for them with the ownership change.
We are definitely could be taking an additional unforeseen financial hit, which we now can't avoid... so much for planning.
Where's that time machine?

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Change in capital gains inclusion rate?

Post by ukridge » 12 Mar 2017 09:31

This article triggered the thinking:

http://business.financialpost.com/perso ... usion-rate

The second half of the article talks about complicated such as setting up a private corporation that I'm not willing to consider. However, there are a few simple changes that I am thinking about that I was considering anyway. e.g. replacing SCHD (which is USD denominated) with HXS (which is CAD denominated and makes no distributions) in my taxable account. This will crystalize capital gains at a favourable rate. I'm sitting on a bunch of capital losses due to earlier unwise ventures, so there should be no tax to pay in 2017 even after all this.

I believe the deadline is March 23rd. What do the others think?

- ukridge.

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Re: Change in capital gains inclusion rate?

Post by SQRT » 12 Mar 2017 10:41

I think there may be an even easier way to obtain optionality re timing of cap gains. It involves transferring appreciated securities to your spouse. This will generally be at your ACB but when you file your return for that year, you can elect to have them transferred at market value. This gives you an option to realize the gain in 2017 (pre budget) or not at all. See Chestnick article in G&M on Friday, March 10. Again, only makes sense if you are planning on selling these appreciated assets soon.

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Re: Change in capital gains inclusion rate?

Post by AltaRed » 12 Mar 2017 11:55

SQRT wrote:I think there may be an even easier way to obtain optionality re timing of cap gains. It involves transferring appreciated securities to your spouse. This will generally be at your ACB but when you file your return for that year, you can elect to have them transferred at market value. This gives you an option to realize the gain in 2017 (pre budget) or not at all. See Chestnick article in G&M on Friday, March 10. Again, only makes sense if you are planning on selling these appreciated assets soon.
I have not read the article, but how do you then handle attribution of income (dividends) thereafter for CRA purposes? The income is still attributable back to the original owner.... or do you transfer them back next year for example?
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Re: Change in capital gains inclusion rate?

Post by SQRT » 12 Mar 2017 16:42

AltaRed wrote:
SQRT wrote:I think there may be an even easier way to obtain optionality re timing of cap gains. It involves transferring appreciated securities to your spouse. This will generally be at your ACB but when you file your return for that year, you can elect to have them transferred at market value. This gives you an option to realize the gain in 2017 (pre budget) or not at all. See Chestnick article in G&M on Friday, March 10. Again, only makes sense if you are planning on selling these appreciated assets soon.
I have not read the article, but how do you then handle attribution of income (dividends) thereafter for CRA purposes? The income is still attributable back to the original owner.... or do you transfer them back next year for example?
This is not designed for income splitting. My spouse and I pay tax at the max marg rates. The divs and any subsequent cap gains would be attributed back to me. The objective is to create optionality around the timing of cap gains. If they raise the inclusion rate my gain will happen pre budget, if they don't increase it, I won't have a gain. I am thinking I may want to sell these shares within the next year or two in any event.

In theory I think I could transfer them back to me next week(at ACB) if they don't change the inclusion rate . Could do the whole thing again next year, if they don't prevent it somehow.

If you are trying to income split, it's straightforward. Elect to transfer at FMV and take an interest bearing (1%) note back. Your spouse will get the divs and any future cap gains less 1% interest expense, you get 1% interest.

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Re: Change in capital gains inclusion rate?

Post by twa2w » 12 Mar 2017 19:45

AltaRed wrote:
SQRT wrote:I think there may be an even easier way to obtain optionality re timing of cap gains. It involves transferring appreciated securities to your spouse. This will generally be at your ACB but when you file your return for that year, you can elect to have them transferred at market value. This gives you an option to realize the gain in 2017 (pre budget) or not at all. See Chestnick article in G&M on Friday, March 10. Again, only makes sense if you are planning on selling these appreciated assets soon.
I have not read the article, but how do you then handle attribution of income (dividends) thereafter for CRA purposes? The income is still attributable back to the original owner.... or do you transfer them back next year for example?
Actually eligible Cdn dividends can be split between spouses.

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Re: Change in capital gains inclusion rate?

Post by SQRT » 13 Mar 2017 09:02

twa2w wrote:
AltaRed wrote:
SQRT wrote:I think there may be an even easier way to obtain optionality re timing of cap gains. It involves transferring appreciated securities to your spouse. This will generally be at your ACB but when you file your return for that year, you can elect to have them transferred at market value. This gives you an option to realize the gain in 2017 (pre budget) or not at all. See Chestnick article in G&M on Friday, March 10. Again, only makes sense if you are planning on selling these appreciated assets soon.
I have not read the article, but how do you then handle attribution of income (dividends) thereafter for CRA purposes? The income is still attributable back to the original owner.... or do you transfer them back next year for example?
Actually eligible Cdn dividends can be split between spouses.
Not if I provided the funds to buy the stock. Income attribution rules require me to be include all such divs in my income unless I structure an interspousal loan (paying prescribed rate) and transfer the stock at market price, likely causing a cap gain.

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Re: Change in capital gains inclusion rate?

Post by DavidR » 13 Mar 2017 10:32

twa2w wrote:Actually eligible Cdn dividends can be split between spouses.
Maybe you're thinking of the "Spousal dividend transfer"? This option is only available if doing so will allow the taxpayer to claim, or increase the claim, for the spousal tax credit. There is no option to include only part of the spouse's dividends.

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Re: Change in capital gains inclusion rate?

Post by twa2w » 13 Mar 2017 13:16

DavidR wrote:
twa2w wrote:Actually eligible Cdn dividends can be split between spouses.
Maybe you're thinking of the "Spousal dividend transfer"? This option is only available if doing so will allow the taxpayer to claim, or increase the claim, for the spousal tax credit. There is no option to include only part of the spouse's dividends.
Yes, was forgetting it only applied in that situation. Not sure what you mean by not being able to include only part of the pouses dividend.
I transfer a portion of my dividends each year to spouse, have been through audits and or reviews in 7 of tnose years with no issues.

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Re: Change in capital gains inclusion rate?

Post by DavidR » 13 Mar 2017 13:58

twa2w wrote:
DavidR wrote: Maybe you're thinking of the "Spousal dividend transfer"? This option is only available if doing so will allow the taxpayer to claim, or increase the claim, for the spousal tax credit. There is no option to include only part of the spouse's dividends.
Yes, was forgetting it only applied in that situation. Not sure what you mean by not being able to include only part of the pouses dividend.
I transfer a portion of my dividends each year to spouse, have been through audits and or reviews in 7 of tnose years with no issues.
I was paraphrasing CRA's rules...section 82(3)
Perhaps CRA assumed you were splitting the dividend income based on spouse's proportionate share of investments and did not question you.

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