Navigating Canada's Capital Gains Tax Hike: A Call to Action

Source Article: Capital gains changes tip the scales for business owners

Advisors Scramble to Help Clients Beat the Deadline

As the June 25th deadline for Canada's proposed capital gains tax increase looms, financial advisors are racing against time to help their clients make critical decisions. The federal government's plan to raise the capital gains inclusion rate (CGIR) from 50% to 66.67% for high-income individuals and businesses has sent shockwaves through the investment community.

According to tax experts like Alexandra Spinner, a partner at Crowe Soberman LLP, the implications are far-reaching. "We will eventually run out of time, and not everybody will be able to make their best choice," she warns. Spinner cites one client who faces an additional $1.8 million in taxes on a corporate asset sale due to the higher CGIR, leaving them with little choice but to proceed.

Joseph Bakish, a portfolio manager at Richardson Wealth Ltd., echoes these concerns. "We're doing an entire evaluation of all our clients to see if an asset can be crystallized, and on what date, and then ask what the implications are overall for them," he explains, highlighting the complexities involved, especially for clients holding illiquid assets.

While the Canada Revenue Agency has clarified that triggering capital gains before June 25th would not be considered tax avoidance, the lack of final legislation has left advisors grappling with uncertainties. Critical details, such as how capital losses will be allocated and whether the $250,000 threshold for individuals will be indexed, remain unclear.

As advisors scramble to help clients navigate this landscape, the potential consequences of the proposed changes are becoming increasingly apparent.

Higher Tax Burden for Corporations

One significant impact is the widening gap between the tax rates for capital gains earned in a corporation and then distributed as dividends versus those earned by individuals. In Ontario, for example, the tax rate on corporate dividends could soar to 38.62% under the higher CGIR, compared to 26.77% for individuals on the first $250,000 of gains.

This disparity has prompted advisors like Hemal Balsara, head of tax, retirement, and estate planning at Manulife Financial Corp., to recommend revisiting portfolio strategies. "Rather than triggering capital gains in the corporation, you may want to revisit your portfolio to make sure you're triggering more capital gains at the personal level because you have this $250,000 threshold," he advises.

Loss of Small Business Deduction

Another concern is the potential loss of small business deduction (SBD) for corporations that generate significant capital gains. As the CGIR increases, corporations may reach the $150,000 threshold for aggregate investment income more quickly, leading to the gradual erosion or complete elimination of the SBD.

Alternative Investment Strategies

In response to these challenges, advisors are exploring alternative investment strategies to help clients preserve their wealth. These include corporately owned life insurance policies, which offer tax-free growth and liquidity through tax-free death benefits, as well as individual pension plans that allow for tax-deferred compensation and growth.

As the 2024 federal budget proposed changes to the capital gains inclusion rate, many Canadians are understandably concerned about the potential impact on their financial well-being. While the government's messaging has been criticized for its lack of transparency, one thing is clear: proactive measures are necessary to safeguard your hard-earned wealth.

In this climate of uncertainty, partnering with a reputable wealth management firm can provide invaluable guidance and access to sophisticated strategies typically reserved for the ultra-affluent. By aligning with a firm that prioritizes capital preservation and tax-efficient returns, you can position yourself to weather the potential tax reforms while maintaining your long-term financial goals.

I have partnered with one of Canada's leading private wealth management firms, renowned for its client-first approach to serving high-net-worth clients nationwide. This firm offers comprehensive wealth planning and alternative investment opportunities, including private equity, private real estate, flow-through tax structures, and corporate insurance solutions. Their "capital preservation first" philosophy ensures consistent, tax-efficient returns uncorrelated to public markets, providing a safeguard against market volatility.

Complimentary Portfolio Evaluation

To help navigate these changes, we are offering a complimentary portfolio evaluation for valued readers. By scheduling a no-obligation consultation, you can gain insights into how their strategies can help you mitigate the impact of the 2024 budget changes and ensure your portfolio remains resilient and aligned with your financial objectives. To book your complimentary portfolio evaluation, email me at [email protected] or use my Calendly Link .

In a world where trust in government is waning and successful Canadians face increasing tax burdens, taking proactive measures to protect your wealth is paramount. By seeking professional guidance and exploring alternative investment opportunities, you can preserve your legacy and maintain financial freedom in the face of potential tax reforms.

Don't let uncertainty dictate your financial future. Embrace a proactive approach and partner with a trusted wealth management firm to navigate the 2024 budget updates with confidence.

The proposed capital gains tax hike has undoubtedly shocked the investment community, but it has also galvanized advisors and their clients to explore innovative strategies and seize opportunities. As the deadline draws near, the race is on to make informed decisions and safeguard hard-earned wealth in the face of this significant policy shift.

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