It's Your Money  

Tax hike is inevitable

Whether you want to believe it, taxes in Canada are going to go up and you should start planning for the inevitable now.

There is no way our government can do anything but raise taxes with the massive spending that they’ve undertaken the past few years. Even the parliamentary budget office called tax hikes “unavoidable.”

Before the global pandemic, the spending was already far more than we could afford. But now, with a projected deficit of $340 billion (which will likely increase) for 2020, it’s gotten completely out of control.

So, what steps should you consider doing today to prepare for these increased taxes?

Trigger Capital Gains

Currently only 50% of capital gains are taxable, but it is likely that the government will increase this “inclusion rate” to 75% next year. With that in mind, anyone who may be selling an asset that would realize capital gains may want to do so before Dec. 31, so the lower tax rate is used.

Hold on to Capital Losses

If you are carrying forward capital losses and planned to use them to offset capital gains this year, you may be better off to hold on to them and use them once the capital gains rate increases for larger savings if you expect to have capital gains next year or beyond.

Carry Forward RRSP Contributions

Much like the capital loss idea above, if you have past RRSP contributions that you’re carrying forward and/or are making RRSP contributions this year, consider holding off using these deductions until the tax rates go up for bigger savings.

Use an Estate Freeze

An estate freeze is the process of taking assets that you own today (most commonly a business) and freezing them at their current value so that you’d pay taxes based on today’s value at death. The tax on the future growth of those assets can be passed down to multiple children to defer it and possibly spread it out.

Prescribed Rate Loans

For families with taxable investment income, splitting income with a spouse via a prescribed rate loan can save taxes. To do so, you would loan your spouse money to invest and charge the prescribed interest rate (only one percent as of July 1) on that loan. The investment income would then be taxable in your spouse’s hands instead of your own. 

Leave Canada

While I hope that we don’t see a large exodus of high-income earners and business owners, some will inevitably choose to leave if we keep on this path.

The latest proposed “wealth tax” outlined in the throne speech will make the wealthy consider just that. If you do choose to leave, you’d want to do so before the increased taxes take effect since Canada is one of the few countries that charges a “departure tax” and that figure will likely significantly rise soon.

If any of the above strategies might work for you, make sure to allow ample time to put them into effect before the end of this year. Doing so could save you a lot of extra taxes down the road.


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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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