FYI the federal budget was released today!
Among other things, looks like the TCG inclusion rate is jumping from 50% to 66.67% on amounts over $250,000. Sounds to me like a compliment to the 100% AMT inclusion rate.
What’s everyone else’s take on this?
I was afraid that they would increase the capital gains inclusion rate. He’s trying to procure votes by appealing to the economically ignorant individuals out there.
It’ll have a negative effect on the economy, albeit not till later on. Fiscal policy changes have a lag effective of 18-24 months before their effect on the economy starts being felt - long after the next election.
To all the mom and pop business owners out there that were expecting to sell their business and use the proceeds to fund their retirement, the tax on the proceeds above the SMABUD exception has just been increased by 33%.
So much for not raising taxes on the middle class…
I have often suggested not to be too concerned about contributing maximum into CPP becasue the farmer and small business owner will get their retirement fund when they retire. Tonight I called a friend who does not have internet or computers and informed him about the change. He thanked me - he has several deals in process - farm transfers - with several million dollars at stake. But which will affect things most - the increase in the LCGE or the change from 50% to 66%.
Video Tax came out with a summary that included the following which I’d think would mean that mom & pop entrepreneurs will have the excess over the increased small business deduction reduced from 50% taxable to 33% taxable. Or am I missing something?
Canadian Entrepreneurs’ Incentive – Commencing in 2025, the capital gains inclusion rate on certain shares will be eligible for a halved capital gains inclusion rate (so 25% or 1/3). The requirements will be more stringent than eligibility for the lifetime capital gains exemption. For example, the taxpayer would be required to have been a founding shareholder with a significant interest (over 10% of votes and value) that owned the shares and was active in the business for at least five years immediately preceding the sale.
Looks like capital gains realized inside a corporation will no longer be integrated in most of my clients’ situations.
This sucks.
Money goes where it feels needed. Increasing tax in Canada doesn’t give money a good feeling so it will go somewhere else. Canada needs productivity growth. Take away the growth in the public sector in the last 5 years and you’ll see that there is no growth in our economy. The Libs have created a huge problem with over-spending and this budget is now how they’re going to try to impress us with their solution. Unfortunately, they’re raising taxes to run a $60B deficit. We’re already paying $52B of interest payments each year. They should be embarrassed to call this a “budget”.
I find it quite deceiving that the Libs are pitching this as a tax on the rich when in fact it is a tax on the middle class. This to going to effect professional corps like lawyers, doctors, accountants, engineers, etc. At a time when we have shortages of doctors, this will definitely exacerbate the shortages by punishing professionals from investing money using their corporations.
Another thing that I found appalling was the Canada Disability Benefit, where the feds would be paying $2,400 per year for the CDB payments, and that too if a taxpayer has a DTC certificate. Also to make matters worse, ODSP and AISH recipients would be punished because apparently provinces like Ontario or Alberta would be able to claw back CDB payments. I have few clients that are currently on ODSP and I was giving them hope that they’d receive more financial support but this…this is nothing. It looks like the federal government is encouraging people on disability to choose MAID rather than assist them financially.
It doesn’t prevent you from investing in your company, it discourages you from being an active trader. Those that buy and hold (like me) don’t trigger any or very little in the way of capital gains along the way unless I need to sell some stock to pay for something. Yes - in that case I pay higher tax but generally speaking by the time the professionals get around to the cashing out part they won’t have huge annual professional incomes so the personal tax on flowing the income through to the personal return will not be huge. The tax rules may have changed again by then anyway. I remember when it was 75% taxable from 1990 to 1999 when I started investing…
I have several friends who have companies and/or farms worth multiple millions (well beyond the small business capital gains exemption) that they were expecting to only pay X amount of tax when they sell and use the proceeds for retirement. Some of them have already selected an estate freeze and have the tax payment at the ready by way of sinking fund or insurance policy. Overnight, their tax burden has increased by 33%. Now, they’ll have to either accept less or retire later to make up the loss caused by the increased tax burden.
As for preventing them from investing back into their companies/farms, yes it will. They won’t reinvest any excess cash to grow the company because they’ll suffer a bigger tax hit. instead they’ll probably take the money out and invest it elsewhere, probably overseas where it won’t help Canada grow.
This is an anti-growth budget written by buffoons living in clown-world.
If there was a freeze, then the gain is already realized on their end. Whoever buys the property, at that point, the opco will have to fork over the additional 16.67%.
Curious to see how this works it’s way into the purchase/sale price on some of these asset values!
Not so. They now have to include 66% of any capital gains above the exclusion limits. They effected their freeze only expecting 50% inclusion.
Thanks Justin…
I’m agreeing with you lol …I’m saying if there was a freeze, whoever froze their shares, the gain was already realized… that’s the whole point of a freeze, to elect at a cost basis equal to the FMV at the time of the freeze, taxed in that year … but now when they sell the property in the opco (because the opco still has the property, the opco will have a higher bill and they will therefore need to fork out the difference) … just a greasy situation all around.
In BC, if a shareholder has less than $250K capital gains, looks like the tax cost to having gains taxed inside a CCPC is around 13% (permanent tax cost).