Show Transcript
Print Transcript
[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Coming up on today's show, we are going to talk about heightened geopolitical risk, obviously it has been a substantial week for that. Brad Simpson, chief strategist at TD Wealth, we will hear from him about how to view it from an economic market perspective. TD Asset Management's Julien Palardy will take us to the potential opportunity in quantitative and passive investing. And we are going to have two perspectives on this week's federal budget. Hafiz Noordin will give us his thoughts on what Ottawa's spending plans might mean for the Bank of Canada and Nicole Ewing will give us some personal-finance perspective. Plus in today's WebBroker education segment, Bryan Rogers is going to show us how you can find out what stocks make up an index.
Before he gets all of that, let's get you updated on the markets. Geopolitical risk has been front and centre. It appears there was a retaliation on behalf of Israel towards Iran in the overnight hours. The market seems, after an initial spike in some quantities, to be coming to grips with it. Let's start here at home.
The TSX Composite Index, we are up 118 points, a little more than half a percent.
Among the most actively traded names today include some of the gold and gas names.
We will start with Kinross Gold, about 4%.
Baytex energy, even though oil did spike in the overnight hours on the news of Israel striking Iran, but apparently it was limited to a military installation.
The price of oil came back and oil and gas companies are holding in.
Baytex is up about 1.6%.
South of the border, it's been a bit of a choppy trade this week, particularly some tech names.
We are back 23 points today, about half percent. The tech heavy NASDAQ, some chipmakers have been bouncing around quite a bit this week, to the downside today.
NASDAQ is down about a full percent.
I want to show you Advanced Micro Devices.
The chipmakers giving back some ground today. $148 and change per share, down about 4% on AMD. And that's your market update.
Markets closely watching those tensions between Israel and Iran ratcheting higher.
Earlier this week, I spoke with Brad Simpson, cheerful strategist at TD Wealth about how investors should be doing the conflict. We started by discussing what it could mean for inflation.
>> The first question is is it leads to interest rates and if you're going to be talking about interest rates, you're going to be talking about inflation.
Because it is in the area of the world where so much of the oil is it's immediately all lead to what's going to be the impact on the price of oil.
If the price of oil starts to go up, which we have seen over the past few weeks, it moved from the mid-80s into $90 going into this attack on the weekend, fell off about a percent were so over the last couple of days here again but if we saw a related change in oil price, or Brent crude over $100, then you would start to see more of an impact on inflation which could have a potential impact on interest rates from here. We do not think that's what we are going to see in the short or mid term of this anyways. The other side of the coin is that in times like this, there is a flight to safety. Flight to safety means that there would be a real potential for market folks to start moving more into US bonds which has the potential to push interest rates down, and so that is actually in a positive. So we remain with our fixed income waiting that we are modestly overweight fixed income and we continue to be very comfortable with that positioning there.
>> What about on the equity side?
You will get back to commodities because there is interplay between commodities and bonds, but let's talk stocks.
>> That's a big one for investors right now and especially if you want to frame that is the story of the S&P 500. If you look at it as October 2023, the S&P rallied about 25% and put on to that in dollar terms it's added about $12 trillion in market capitalization. This is a market that has moved an awful lot and it's one where there's been almost no volatility in the last five, six months either.
This is a market looking for something to be able to correct on. Because this was so well telegraphed, it ended up not being the type of catalyst that the market is looking for but if you look at it over the last few weeks, we have started to see a little bit of correction and that correction, we think that we are probably going to see more of that in the weeks ahead.
There is a lot of headwind here just to try to take some steam out of this market, if you will.
And so for that, we think that this is a little bit of a cautionary tale which leads to right now we are waiting in equity markets as neutral.
We think that's a good way of looking at that right now.
>> We touched on oil and the interplay could have on inflation which could feed back to the bond market. What about other commodities in all this?
>> The commodity story is the side that's really interesting for a couple of reasons.
One starting out is if you think about what our job is to do, me and my team, is really thinking about how do you allocate capital, asset allocation and risk management?
And so for us, going into this, you look back into the beginning of the year were even into last November when we were doing our year ahead, one of our points and our year ahead document was that we foresaw that there is obviously a lot of turbulence in this area of the world, and one of the things you really want to look at is the potential for an increased military warfare which would lead to more pressure on oil prices. So one of the outcomes was weighting towards oil in the events that there was an increase in military tensions. We continue to think, we are modestly overweight commodities as a whole and this is a strategic allocation and a tactical one meeting that we think investors have to have a continuous position in the commodity side of the market. The reason for that is it's a really good hedge. If we look at how the market has been moving over the last six months, every time there has been an increase in tension where the two wars are going on right now, in Ukraine and Israel, what we are seeing is not commodities have been playing the role of a very good diversify her and we continue to think that makes a lot of sense here.
>> You and I have had a lot of discussions about having longer-term thinking about the markets. As you talk about allocating capital, off the top, you said that these developments, although they can be fast-moving, implications or weeks, months and even years, what should investors be thinking about regarding these geopolitical tensions in their portfolio?
>> The important part is I think that one of the things that helps is that one of the things we have been writing a lot about over the last couple of years is that in this era of de-globalization, we are now unfortunately within an area where there is going to be more of this sort of strife globally meaning that one can basically build their investment portfolio without taking that into consideration.
The starting point if that really comes down to making sure that you are allocating in a well diversified investment portfolio.
That is also directional and what that in simple English means is you should not be allocating your portfolio solely based on what you own that it's going to go up. You should also be looking at it in terms of what can also go down so that you can be doing hedging their to protect capital but also has the potential to protect when volatility kicks up. I think if you do that and then the last part is is at the end of the day making sure that that why you are investing, having the financial plan and then having your investments up against your goals so that you stretch out your time horizon. Many of us have long-term time horizons.
One of the things you could look at is that long-term assets like equities, really, it pays off that even though you could go through errors of different, like what we see now, an era of increased warfare, if you look at in times past, as long as you have a long time horizon, your portfolio cannot only whether these well but you could also see a lot of growth.
>> That was Brad Simpson, chief wealth strategist with TD Wealth.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Netflix in the spotlight today, the video streaming it giant deliver to be on the top and bottom lines for its most recent quarter. Yet, the stock is down 8.5%. What's going on?
Investors are focused on the forecast.
Netflix says it expects subscriber numbers to be softer this quarter due to seasonality. The company has said it will stop reporting quarterly membership numbers and average revenue per user, starting next year. Household products behemoth Proctor and Gamble is reporting a mixed quarter, with earnings above estimates on weaker than expected sales.
The company behind high detergent and charming toilet papers all flat sales volumes for a second quarter in a row.
Inflationary price hikes for goods have seen company such as PNG struggled to grow sales knowledge.
Proctor and Gamble is down 1.5%. Shares of Paramount are on the move today.
They are up to the tune of almost 9%. This is all on unconfirmed media reports that Sony pictures entertainment and Apollo Group Management are considering a joint bid for this media company.
Currently at this moment, Paramount is currently in talks to merge with Skydance Media. There is going to be some intrigue on the story on the days ahead.
Quick check in on the market, we will start with the TSX Composite Index. Up 109 points, about half a percent. Seeing some strength in the mining stocks and oil and gas talks today.
South of the border, it's been a bit of a choppy week for the S&P 500.
It's struggled to find solid footing to the upside. Today nothing too dramatic but we are down about 29 points, a little more than half a percent.
From geopolitical risk to concerns about the future path of interest rates, there are no shortage of issues for investors to wait. Given that backdrop, what role can strategies like quantitative and passive investing play in this environment? Julien Palardy, managing Dir. and head of quantitative and passive investing at TD Asset Management join me earlier to discuss.
>> There are quite a few strategies.
Typically the strategies are between quantitative and passive and within the quantitative space you can think of strategies that fit different types of objectives for investors. On the one hand you would have strategies that seek to beat the markets, you would also have risk driven strategies that focus on reducing risk so those would be low volatility strategies.
Then you would have I would also alternative strategies because they are very common with the objective could be slightly different that just returns were risk. It could be dividend strategies where a goal could be to achieve a fairly reasonable dividend yield versus the market but maintaining that dividend yield through time with the dividends through time by avoiding dividend cutters or growing dividends as well, so that would be a bit different than just pure returns were risk but it still fits objectives that investors would typically have.
>> Let's start breaking some of them down.
You mentioned quantitative, passive, dividend strategies.
Let's start with the palm side of it. For some people, they say, I have heard the term quantitative investing, I don't understand what it means.
>> Quantitative strategies are all about choosing an objective and using mathematical models, so working with statistics, massaging data and trying to extract from data as much information as possible about future risk or future returns of stocks as well, so it comes down to turning data into usable information into forecasted returns and then building portfolios around this, that's an important part of quant strategies. You want to build portfolios that will allow you to generate your returns as systematically as possible through time or reduce risk in the most possible and robust manner through time as well.
>> That's interesting on the quantitative front. The passive stuff, how does that differ from quantitative?
>> It's quite different although some of the tools are fairly similar.
When it comes to passive investing, typically though strategies are going to be tracking a specific index and the goal here is to be as close as possible to the index through time. They try to match this as perfectly as can be. The outcome that you're going to get is going to be entirely a function of what the annex is going to do. Most of those indices would be cap-weighted but there is also a growing space where there are indices that are not cap-weighted, they follow specific strategies or I would call them recipes, they are kind of quant strategies but on the light side of things.
It might be a bit simpler than the full quant strategies that we have on the team.
There is an increasing number of those indices and passive strategies can be tracking those indices as well.
This differs from quant where you have complex models that seek to be markets or reduce risk. That would typically not be the case for passive strategy. The tools can be similar so we have a fairly systematic approach on the entire team across quant and passive. We use optimizers, for example.
But when it comes to passive, it's really with the objective of matching specific indices like the S&P 500, for example.
>> Let's talk dividend investing. I think people will understand how that works. At the same time, I did the question for a while now has been, is this a favourable environment for dividend investing?
>> I would think so. In fact, it could always be an environment for dividend strategies in the long run at least but right now at least in Canada we are facing a situation where it's very likely that the central bank is going to cut rates this year. We have seen already spread that we have between Canadian bond yields and US bond yields so this is a clear indication that the market is expecting there is going to be some divergence to some degree in terms of monetary policy north and south of the border.
In this type of environment, going out there to find sources of perpetual yield that you could lock-in, this could be given by dividend yielding stocks and the key here is to focus on quality so you want to make sure that you buy stocks that are not going to cut there dividend in the near future. If there is a recession, for example, you want those dividends to remain as robust as possible. So right now it's a great opportunity to lock it a yield that is going to be higher than what you can typically get with government bonds in Canada. The yield could be in the range of 1% above that.
And hopefully you could be higher for the foreseeable future. Let's say bundles go down. Those dividends will keep getting paid and hopefully even grow in the future.
>> That's a key point to I think when it comes to dividend investing, talking about quality names continuing to support the dividend. People look at the space often talk about, here's the dividend right now, do they have a history of growing the dividend and will they continue to grow it?
>> Exactly. Ultimately, there are some key factors when it comes to quality and we do have ETFs on our team that focus first on quality.
We weed out from our investment universal companies that are most likely to cut there dividend or where the dividends are not sustainable and then we have an optimization process where we focus on maximizing the quality of the stocks that we hold, subject to a constraint. We'll go the other way around where we try… [video stopped] >> Another strategy that hasn't gotten a lot of attention lately considering how the markets perform last year but if I do I'll back to about 2022, I think low volatility was in the headlines a lot.
That was a pretty tumultuous year. What's happening in the space right now?
>> I would say that low volatility lost the favour of investors quite a bit recently because people forget risk in strong markets.
We saw last year and this year as well fairly concentrated market rally.
The market rally has brought it down a bit in cynical sectors but the low volatility stocks are generally left out of this, defensive sectors are left out of the rallies so far this year and last year, and as a response investors are shying away from low volatility strategies but historical evidence shows us that it is in times like these that it is the best time to invest in low volatility. We went back to the 90s where we saw similar period in the late 90s, 98, 99, this would have been the best time to get into low volatility or at least the worst time to get out but unfortunately most of the market is thinking about what has done well recently.
I think low volatility it will continue to be out-of-favour but they will come back in favour if there is a market correction.
>> A lot of interesting stuff there, a lot of strategies. How do you build a team to run all these kind of strategies?
What kind of backgrounds do your people have?
>> So when I joined the team, 17, 18 years ago, most of the people had backgrounds in finance and economics. We all have Masters degrees and in some cases PhD's. We had one PhD in physics.
It was an exception because the person was working on bond models and fixed income models in general.
And nowadays, I would say that we have diversified the kind of background quite a bit.
The type of tires that we do typically have technical backgrounds but in different fields. We have people in computer science, we have an individual with a PhD in math, we have someone to do the PhD in cognitive sciences, so quite interesting background but spent a few years in finance so they are all familiar with finance quite a bit but unlike our backgrounds from back in the days, we don't necessarily hire people in finance or economics anymore. Sometimes I joke said today I'm not sure I would be hiring myself on the team. Even though I lead the team, I was lucky to join 17, 18 years ago. But today we look for people who can do a lot of first of all they need to know how to code, that is a mandatory requirement on the team, but the second thing that we are looking at is bringing a diverse set of backgrounds so that we can complete each other when it comes to doing research projects, for example.
So we look at diversity of knowledge and skill sets.
>> That was Julien Palardy, managing Dir.
and head of quantitative and passive investing at TD Asset Management.
Now, let's get our educational segment of the day.
If you are looking to find out what stocks actually make up an index, the broker has tools which can help. Joining us undiscussed, Bryan Rogers from TD Direct Investing.
Is there a quick way and will broker that the companies can get a view of the index?
>> Yes, yes. This is one of those things that I'd really like to show because it's very simple but I think it's really powerful as well.
Especially for anybody new in investing, they are wondering, the S&P 500, what is that?
I think there 500 socks on their where the Dow Jones, what stocks are listed there?
If you are interested in how to find that, there is an easy way to do this on my broker.
There is a local area and will broker related to indexes and indices.
Let's jump over, we take a look, we see on the research tab, right from the very beginning, we find MoneyTalk Live on the overview, right next to that is indices.
You'll notice there are a number of different things here. You can chart the different indices, a number of different things to look at. One of the ones that I really love is down here, there's a whole listing of you can see the Dow Jones industrial average, the DJIA, it can takes it digging here to get used to what all of these are, but let's take a look at the quick example at the S&P 500.
If I click on the associated hyperlink, it's going to pull up this little box that has some charting information and some other basic information but at the bottom, you're going to see a number representing the companies that make up the index.
You will notice they are listed now, there's 500 in this particular case, this is a broad-based index, the S&P 500.
It's going to be listed like the ones that have numbers at the beginning up tall, I think it goes alphabetically, and to some extent you can sort many of these columns.
We may take a look at that later.
The first thing I wanted to show you is the idea that the indexes that you can select an hour on this drop-down, so there are a number of them listed. If you are interested in, for example, something related to a specific sector, like I know we have often talked about gold as an example, so looking at the global gold index. I click that and I could see all of the stocks that are part of that.
It's a really quick screen. There are other screeners in my broker but it's really fast to look at. You can scroll down, maybe you want to see banking stocks, there is TSX banks and so on.
That one doesn't work any longer.
Some you may notice they have changed chores since been altered. Go to the financials Index and that's what when you want to look at now instead of banks.
>> You're showing us the S&P 500, obviously there's a lot of names to sift through, how do we start filtering the information?
>> Yes. Quickly we will jump back over to web broker. That's one of my favourite things.
I'm going to go back to the S&P 500.
I go to the drop down and select S&P 500.
We have 500 socks. I mentioned this like a screen earlier.
You can do some basic screens. It's really powerful, especially for those who are moved who want to find a specific stock on the S&P 500 that has a certain percentage change, the ones that are up.
You mentioned that on the show sometimes, like Paramount, the value chain today.
That's one way you can filter through, dollar or percentage.
You can click on volume, the most volume, Tesla has most volume right now, Nvidia and so on.
If you go by dividend yield, if you want to find stocks on the S&P 500 that have the highest dividends. You can research it further. Once you see this on that list, you can go Exide and go to performance as well by going to the next tab.
And you can sort these also. I want to go when you're performance, which was the highest or lowest.
Don't take that as advice. Remember that past performance isn't always a guarantee of future performance. But then you can do research further as you click on each one of these symbols and it will take you into much more detail about the specific stock.
>> Great stuff as always, Bryan. Thanks for that.
>> Thanks, Greg.
>> Our thanks to Bryan Rogers, Senior client education instructor at TD Direct Investing. For more information and resources you can check out the learning centre and will broker or use this QR code to navigate to TD Direct Investing's YouTube page. Once there, you will find more informative videos.
This week's Canadian federal budget laid out more than $50 billion in new spending over the next five years.
So what could that mean for the Bank of Canada as it tries to get inflation back down to 2%?
Hafiz Noordin, VP and Dir., active fixed income portfolio management at TD Asset Management join me earlier to discuss.
>> At least some deterioration in the deficit outlook over the next few years, so that alone is not a great outcome. But when we think about it, there was some raise in tax revenue but offset by spending.
So I think net, it didn't really rock the boat too much in terms of financial markets. We did not see bond yields move very meaningfully. On the revenue side, we saw the announcement on the capital gains inclusion rate for corporations and large capital gains at the individual level. But on the flipside, we also saw more spending particularly around housing but also other areas like healthcare. That new stimulus, there are different ways of looking at the numbers, 35 billion is the net new stimulus relative to what was expected or what was baked in from the fall update in November, and that 35 billion is over the next five years. When you think about spreading that out as a percent of our GDP, it's not a huge increase. But I think the main takeaways that persisting deficits to, and not really see a path to balancing the budget anytime soon, I think that's where there has to be some questions.
>> Let's talk about that because deficits as you said, it's persistent, the timeline, there is no path back to balance. How do we read through on that?
>> Part of the budget is this debt management strategy so we have to kind of see then how are they going to fund all of this.
So the big high-level numbers that we saw in terms of the amount of debt that will need to be issued this year is about 500 million, so it sounds massive, but we always have to adjust for how much of that is just debt ruling over, so how much debt is maturing and this coming fiscal year.
When you subtract the amount of debt that's maturing, it's about 85 million of net new issuance and then we look at how much of that is going to be in treasury notes, that's less than one year bills, versus bonds that are issued at two-year, five year, tenure and 30 or 10 years. Back and start a pressure bond yields higher.
The amount of bonds that will be issued this year is about 230 million.
Analysts in general were expecting to 42 to 50 million so it's a bit lower-than-expected.
From that perspective, the issuance strategy is still relatively benign. It's not, again, rocking the boat too much in terms of the volume investors were accepting.
>> The last time we heard from Tiff Macklem, I make it sound like it was a million years ago but it was during the budget, he said, we are still holding where we are right now. Issued a possibility for cut? It's not impossible.
The market is thinking July but the conversation I had, maybe it was with you, they are going to see a federal budget before they decide. We are now on the other side of the federal budget.
Is there anything in here that might change Tiff Macklem's perspective?
>> They will obviously have some longer-term perspectives that might be impacted when it comes to the amount of government spending and the impact on GDP, perhaps a bit of inflationary impact.
But the other thing that we got yesterday was the CPI print for marching Canada which missed to the downside so the full day yesterday, we had a meaningful bond rally in Canada wall US bonds were selling off.
I think when we look very near term which is probably what the BOC is going to focus on more now because the budget wasn't meaningfully different, they are going to look at how to extrapolate the inflation data and monitor that. The headline and core inflation book came in at about 2.9% year-over-year as of March, so we are just now tipping below 3% and I think from that perspective, it is consistent with their narrative around declining, gradually declining inflation and I think importantly the momentum and inflation is definitely declining to the extent that June is still very much on the table.
>> I think that Tiff Macklem was part of a panel discussion with Jerome Powell. I think I saw Bill Morneau to, I was watching from the corner of my eye. It was on the TV and were focusing on other things.
It's not often that we get reactions from both of these figures on the same day. But he seemed pleased.
>> I think he still balanced that knowing that there still some data to come.
We are talking about you and so there are still the data release for the rest of April and May.
They will be looking for consistency in this trend that by June, if we are seeing this disinflation continue, if it's in the more than 2 1/2% area, I think that would definitely be more consistent with the idea that cutting to at least get off the maximum policy level is reasonable.
And that is in stark contrast to what Jay Powell is facing. I think so far the data is supportive, they just want to see the consistency.
>> A wild card here, that was one thing if you wanted to quibble with that report, he stripped down to the core measures, things are moving the way the BOC wants, the headline is shelter costs and… >> I think there is always an amount of volatility and that's why we have this core measure and I think at the end of the day, even the headline level including energy and food, still just dipping below 3%.
I think there has been a more recent increase in gas prices for sure that could start to filter in, but I think knowing that there's still a lot of volatility around what's driving oil prices, we know that there is obviously concerns in the Middle East that are impacting your term supply expectations, at the same time, we are seeing strong US growth so the demand for energy has been increasing.
We see that bouncing commodities, it hasn't been so strong that it's really impacting inflation expectations, so how much are consumers expecting inflation to increase. That's the one that the BOC really has to watch to know that there is a concern and that they have to actually will demand down a little bit more.
>> That was Hafiz Noordin, VP and Dir., active fixed income portfolio manager at TD Asset Management.
In addition to that new spending, the budget also included changes to capital gains tax were wealthy individuals and corporations.
Nicole Ewing join me earlier to discuss.
>> It finally happened, we saw change to the capital gains rate.
Current capital gains inclusion rate is 50%, so you need to include 50% of the capital gain and your taxes and you are subject to tax on that amount. What's changing is for trusts and corporations, that rate will change to two thirds. You will need to include two thirds of the capital gain and be taxed on that amount.
For individuals, that two thirds rate will only kick in one see you are above the $250,000 threshold.
Under $250,000, you are still subject to the 50% inclusion rate. Above that, you will be subject to these new rules as of June 25, 2024. Those new rules will apply.
Over 250,000, we have a two thirds inclusion rate for individuals.
>> Let's talk about June 25 this year when those new rules would kick in. Does that complicate things when it comes to filing 2024 taxes for the 2024 tax year?
>> There will be some transitional rules but we know there will not be a prorated amount for 2024 so that hundred and $50,000 will apply.
It will make it perhaps a little bit complicated for individuals when it comes to their taxes but this is why we seek the advice of experts on this, the details on the transaction will have to be dug into a little bit more over the coming days but with any change, anytime there is a change, is going to requires some adjustments to our thinking and planning.
>> You raise an important point. As people look at this and if it does apply to them, the time to talk to a professional about what does it actually mean for me and my strategies.
>> What we know is that according to the release, it is .13% of Canadians who are going to be subject to this and they would have an average income of $1.42 million, so those are the ones who are expected to be caught by this and 12% of corporations and trusts are expected to be facing higher inclusion rates. This is not going to apply to very many individuals but certainly for those to whom it does apply, they would want to get that expert advice, perhaps not only on how to file the taxes but maybe some planning going forward about the types of income sources that they would want to be receiving and whether there is any changes to the structure of their cash flow or income that they want to be thinking about.
>> Alright so that's capital gains tax rules, which as you said, every year, we go into the budget with the idea that there could be a change, now we have had it delivered. Great breakdown.
We have talked a lot about the alternative minimum tax, some different focus here I guess when it comes to charitable donations. What's going on?
>> It looks as though the government has responded to some feedback that when these rules were announced, there was some pushback on them because essentially we were going from $40,000 subjected to 173,000 so very, very increased amount significantly to what sort of income would be subject to this alternative minimum tax. What ended up being caught there though was charitable donations and it was caught in a way that there was some concern frankly that it would impede or prevent maybe some people from making charitable donations that they otherwise would have wanted to be making because the alternative minimum tax would be a factor that would be considered. So what these rules do then is change, the proposals change the amount of the tax treatment of charitable donations so individuals can claim 80% as opposed to the previously proposed 50%. We would also be able to fully deduct guaranteed income supplements, social assistance, Worker's Compensation amounts, fully exempt employee ownership trust from the regime and allow some of the disallowed credits from the regime where you're not going to get credit for the credits and those have been expanded as well.
It appears as though the government has made some adjustments to this regime and is still going forward with the changes to the alternative minimum tax, but for charitable donations, they have changed it to 80% as opposed to 50% credit for that.
>> Interesting things there. Let's talk about some measures for business owners.
The lifetime capital gains exemption when you sell a small business. What's happening here?
>> The lifetime capital gains exemption, you are able to not pay tax on the portion of the amount that you sell that has been it was essentially indexed up to $1 million for many years. It is increasing to 1.25 so where the lifetime capital gains exemption is increasing to 1.25 million.
That will essentially give folks an additional amount to be able to not pay tax on.
That only applies to certain types of shares of certain types of corporations.
There are a number of rules.
There are rules about how long the shares need to have been held for, the types of businesses, the assets and holes, whether or not it has significant passive income or retained earnings, so again this is where we do want to have tax professionals helping us ensure that if you are going to be claiming that lifetime capital gains exemption that you will meet the qualifications for those who do whereas we are seeing an increase in the amount that is going to 1.25. It will resume indexing for a number of years, it will resume that indexing in 2026.
>> Okay, let's take on business owners.
Something called the Canadian entrepreneurs incentive. Tell me about that.
>> This is really interesting because in addition to the lifetime capital gains exemption, this new exemption is designed for entrepreneurs and it reduces the tax rate on capital gains, the disposition of qualifying shares, it reduces it by half of the otherwise, the capital gains inclusion right that would otherwise apply.
Either we have the 50% inclusion rate or the 66% inclusion rate, but that is now going to allow for some additional reductions of the capital gains amount that an entrepreneur would need to pay, and the limit is going to go up to $2 million. It will be phased in in increments of $200,000 beginning in 2025.
And there's a number of conditions. With all the sorts of things, there are a number of conditions that need to be met but what's interesting about this one to me was that there is a requirement that the individual who is making the came must be a founding investor at the time that the Corporation was initially capitalized which really does distinguish this as a feature for entrepreneurs as opposed to maybe those who acquired shares and a private corporation but were not necessarily there from the ground up.
An interesting development.
>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function.
Gotta view here of the market movers. We are starting with the TSX 60 by price and volume.
You can see that we've got some green on the screen and the energy sector. The price of crude is holding steady just a little shy of 83 bucks per barrel at this hour. We woke up to lose that apparently Israel did launch a retaliatory strike against Iran for the actions of last weekend. Initial report seemed to be that the strike itself was not that big. The response from Morin muted so far. Market seemed to be calmer. The price of oil spiked on initial reports right now about $83 but the energy needs are holding in.
Enbridge is up almost 2%, Suncor up 1.5%, some green on the screen in that area.
More of a mixed bag when it comes to the material space.
We have the price of gold up $16 per ounce right now, a little shy of 2400 bucks per ounce, Kinross is up but a little more muted in other parts.
South of the border, it's been a choppy week for the S&P 500 and for Wall Street.
Right now the S&P 500 is down just modestly.
Looks to be the chipmakers again.
There is some strength of the Wall Street financials. Nvidia is down, AMD down.
It's been a bit of a bumpy ride recently.
As always, make sure you do your own research before making any investment decisions.
stay tuned. Monday show, Michael Craig, Managing Director and head of asset allocation at TD Asset Management is going to be our guest and you want to take your questions about asset allocation.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. On behalf of Mia and Anthony in front of the camera and everyone behind the scenes who brings you the show every day, thanks for watching. It's been a busy week.
It'll be an interesting one next week. We will see you then.
T [music]
Coming up on today's show, we are going to talk about heightened geopolitical risk, obviously it has been a substantial week for that. Brad Simpson, chief strategist at TD Wealth, we will hear from him about how to view it from an economic market perspective. TD Asset Management's Julien Palardy will take us to the potential opportunity in quantitative and passive investing. And we are going to have two perspectives on this week's federal budget. Hafiz Noordin will give us his thoughts on what Ottawa's spending plans might mean for the Bank of Canada and Nicole Ewing will give us some personal-finance perspective. Plus in today's WebBroker education segment, Bryan Rogers is going to show us how you can find out what stocks make up an index.
Before he gets all of that, let's get you updated on the markets. Geopolitical risk has been front and centre. It appears there was a retaliation on behalf of Israel towards Iran in the overnight hours. The market seems, after an initial spike in some quantities, to be coming to grips with it. Let's start here at home.
The TSX Composite Index, we are up 118 points, a little more than half a percent.
Among the most actively traded names today include some of the gold and gas names.
We will start with Kinross Gold, about 4%.
Baytex energy, even though oil did spike in the overnight hours on the news of Israel striking Iran, but apparently it was limited to a military installation.
The price of oil came back and oil and gas companies are holding in.
Baytex is up about 1.6%.
South of the border, it's been a bit of a choppy trade this week, particularly some tech names.
We are back 23 points today, about half percent. The tech heavy NASDAQ, some chipmakers have been bouncing around quite a bit this week, to the downside today.
NASDAQ is down about a full percent.
I want to show you Advanced Micro Devices.
The chipmakers giving back some ground today. $148 and change per share, down about 4% on AMD. And that's your market update.
Markets closely watching those tensions between Israel and Iran ratcheting higher.
Earlier this week, I spoke with Brad Simpson, cheerful strategist at TD Wealth about how investors should be doing the conflict. We started by discussing what it could mean for inflation.
>> The first question is is it leads to interest rates and if you're going to be talking about interest rates, you're going to be talking about inflation.
Because it is in the area of the world where so much of the oil is it's immediately all lead to what's going to be the impact on the price of oil.
If the price of oil starts to go up, which we have seen over the past few weeks, it moved from the mid-80s into $90 going into this attack on the weekend, fell off about a percent were so over the last couple of days here again but if we saw a related change in oil price, or Brent crude over $100, then you would start to see more of an impact on inflation which could have a potential impact on interest rates from here. We do not think that's what we are going to see in the short or mid term of this anyways. The other side of the coin is that in times like this, there is a flight to safety. Flight to safety means that there would be a real potential for market folks to start moving more into US bonds which has the potential to push interest rates down, and so that is actually in a positive. So we remain with our fixed income waiting that we are modestly overweight fixed income and we continue to be very comfortable with that positioning there.
>> What about on the equity side?
You will get back to commodities because there is interplay between commodities and bonds, but let's talk stocks.
>> That's a big one for investors right now and especially if you want to frame that is the story of the S&P 500. If you look at it as October 2023, the S&P rallied about 25% and put on to that in dollar terms it's added about $12 trillion in market capitalization. This is a market that has moved an awful lot and it's one where there's been almost no volatility in the last five, six months either.
This is a market looking for something to be able to correct on. Because this was so well telegraphed, it ended up not being the type of catalyst that the market is looking for but if you look at it over the last few weeks, we have started to see a little bit of correction and that correction, we think that we are probably going to see more of that in the weeks ahead.
There is a lot of headwind here just to try to take some steam out of this market, if you will.
And so for that, we think that this is a little bit of a cautionary tale which leads to right now we are waiting in equity markets as neutral.
We think that's a good way of looking at that right now.
>> We touched on oil and the interplay could have on inflation which could feed back to the bond market. What about other commodities in all this?
>> The commodity story is the side that's really interesting for a couple of reasons.
One starting out is if you think about what our job is to do, me and my team, is really thinking about how do you allocate capital, asset allocation and risk management?
And so for us, going into this, you look back into the beginning of the year were even into last November when we were doing our year ahead, one of our points and our year ahead document was that we foresaw that there is obviously a lot of turbulence in this area of the world, and one of the things you really want to look at is the potential for an increased military warfare which would lead to more pressure on oil prices. So one of the outcomes was weighting towards oil in the events that there was an increase in military tensions. We continue to think, we are modestly overweight commodities as a whole and this is a strategic allocation and a tactical one meeting that we think investors have to have a continuous position in the commodity side of the market. The reason for that is it's a really good hedge. If we look at how the market has been moving over the last six months, every time there has been an increase in tension where the two wars are going on right now, in Ukraine and Israel, what we are seeing is not commodities have been playing the role of a very good diversify her and we continue to think that makes a lot of sense here.
>> You and I have had a lot of discussions about having longer-term thinking about the markets. As you talk about allocating capital, off the top, you said that these developments, although they can be fast-moving, implications or weeks, months and even years, what should investors be thinking about regarding these geopolitical tensions in their portfolio?
>> The important part is I think that one of the things that helps is that one of the things we have been writing a lot about over the last couple of years is that in this era of de-globalization, we are now unfortunately within an area where there is going to be more of this sort of strife globally meaning that one can basically build their investment portfolio without taking that into consideration.
The starting point if that really comes down to making sure that you are allocating in a well diversified investment portfolio.
That is also directional and what that in simple English means is you should not be allocating your portfolio solely based on what you own that it's going to go up. You should also be looking at it in terms of what can also go down so that you can be doing hedging their to protect capital but also has the potential to protect when volatility kicks up. I think if you do that and then the last part is is at the end of the day making sure that that why you are investing, having the financial plan and then having your investments up against your goals so that you stretch out your time horizon. Many of us have long-term time horizons.
One of the things you could look at is that long-term assets like equities, really, it pays off that even though you could go through errors of different, like what we see now, an era of increased warfare, if you look at in times past, as long as you have a long time horizon, your portfolio cannot only whether these well but you could also see a lot of growth.
>> That was Brad Simpson, chief wealth strategist with TD Wealth.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Netflix in the spotlight today, the video streaming it giant deliver to be on the top and bottom lines for its most recent quarter. Yet, the stock is down 8.5%. What's going on?
Investors are focused on the forecast.
Netflix says it expects subscriber numbers to be softer this quarter due to seasonality. The company has said it will stop reporting quarterly membership numbers and average revenue per user, starting next year. Household products behemoth Proctor and Gamble is reporting a mixed quarter, with earnings above estimates on weaker than expected sales.
The company behind high detergent and charming toilet papers all flat sales volumes for a second quarter in a row.
Inflationary price hikes for goods have seen company such as PNG struggled to grow sales knowledge.
Proctor and Gamble is down 1.5%. Shares of Paramount are on the move today.
They are up to the tune of almost 9%. This is all on unconfirmed media reports that Sony pictures entertainment and Apollo Group Management are considering a joint bid for this media company.
Currently at this moment, Paramount is currently in talks to merge with Skydance Media. There is going to be some intrigue on the story on the days ahead.
Quick check in on the market, we will start with the TSX Composite Index. Up 109 points, about half a percent. Seeing some strength in the mining stocks and oil and gas talks today.
South of the border, it's been a bit of a choppy week for the S&P 500.
It's struggled to find solid footing to the upside. Today nothing too dramatic but we are down about 29 points, a little more than half a percent.
From geopolitical risk to concerns about the future path of interest rates, there are no shortage of issues for investors to wait. Given that backdrop, what role can strategies like quantitative and passive investing play in this environment? Julien Palardy, managing Dir. and head of quantitative and passive investing at TD Asset Management join me earlier to discuss.
>> There are quite a few strategies.
Typically the strategies are between quantitative and passive and within the quantitative space you can think of strategies that fit different types of objectives for investors. On the one hand you would have strategies that seek to beat the markets, you would also have risk driven strategies that focus on reducing risk so those would be low volatility strategies.
Then you would have I would also alternative strategies because they are very common with the objective could be slightly different that just returns were risk. It could be dividend strategies where a goal could be to achieve a fairly reasonable dividend yield versus the market but maintaining that dividend yield through time with the dividends through time by avoiding dividend cutters or growing dividends as well, so that would be a bit different than just pure returns were risk but it still fits objectives that investors would typically have.
>> Let's start breaking some of them down.
You mentioned quantitative, passive, dividend strategies.
Let's start with the palm side of it. For some people, they say, I have heard the term quantitative investing, I don't understand what it means.
>> Quantitative strategies are all about choosing an objective and using mathematical models, so working with statistics, massaging data and trying to extract from data as much information as possible about future risk or future returns of stocks as well, so it comes down to turning data into usable information into forecasted returns and then building portfolios around this, that's an important part of quant strategies. You want to build portfolios that will allow you to generate your returns as systematically as possible through time or reduce risk in the most possible and robust manner through time as well.
>> That's interesting on the quantitative front. The passive stuff, how does that differ from quantitative?
>> It's quite different although some of the tools are fairly similar.
When it comes to passive investing, typically though strategies are going to be tracking a specific index and the goal here is to be as close as possible to the index through time. They try to match this as perfectly as can be. The outcome that you're going to get is going to be entirely a function of what the annex is going to do. Most of those indices would be cap-weighted but there is also a growing space where there are indices that are not cap-weighted, they follow specific strategies or I would call them recipes, they are kind of quant strategies but on the light side of things.
It might be a bit simpler than the full quant strategies that we have on the team.
There is an increasing number of those indices and passive strategies can be tracking those indices as well.
This differs from quant where you have complex models that seek to be markets or reduce risk. That would typically not be the case for passive strategy. The tools can be similar so we have a fairly systematic approach on the entire team across quant and passive. We use optimizers, for example.
But when it comes to passive, it's really with the objective of matching specific indices like the S&P 500, for example.
>> Let's talk dividend investing. I think people will understand how that works. At the same time, I did the question for a while now has been, is this a favourable environment for dividend investing?
>> I would think so. In fact, it could always be an environment for dividend strategies in the long run at least but right now at least in Canada we are facing a situation where it's very likely that the central bank is going to cut rates this year. We have seen already spread that we have between Canadian bond yields and US bond yields so this is a clear indication that the market is expecting there is going to be some divergence to some degree in terms of monetary policy north and south of the border.
In this type of environment, going out there to find sources of perpetual yield that you could lock-in, this could be given by dividend yielding stocks and the key here is to focus on quality so you want to make sure that you buy stocks that are not going to cut there dividend in the near future. If there is a recession, for example, you want those dividends to remain as robust as possible. So right now it's a great opportunity to lock it a yield that is going to be higher than what you can typically get with government bonds in Canada. The yield could be in the range of 1% above that.
And hopefully you could be higher for the foreseeable future. Let's say bundles go down. Those dividends will keep getting paid and hopefully even grow in the future.
>> That's a key point to I think when it comes to dividend investing, talking about quality names continuing to support the dividend. People look at the space often talk about, here's the dividend right now, do they have a history of growing the dividend and will they continue to grow it?
>> Exactly. Ultimately, there are some key factors when it comes to quality and we do have ETFs on our team that focus first on quality.
We weed out from our investment universal companies that are most likely to cut there dividend or where the dividends are not sustainable and then we have an optimization process where we focus on maximizing the quality of the stocks that we hold, subject to a constraint. We'll go the other way around where we try… [video stopped] >> Another strategy that hasn't gotten a lot of attention lately considering how the markets perform last year but if I do I'll back to about 2022, I think low volatility was in the headlines a lot.
That was a pretty tumultuous year. What's happening in the space right now?
>> I would say that low volatility lost the favour of investors quite a bit recently because people forget risk in strong markets.
We saw last year and this year as well fairly concentrated market rally.
The market rally has brought it down a bit in cynical sectors but the low volatility stocks are generally left out of this, defensive sectors are left out of the rallies so far this year and last year, and as a response investors are shying away from low volatility strategies but historical evidence shows us that it is in times like these that it is the best time to invest in low volatility. We went back to the 90s where we saw similar period in the late 90s, 98, 99, this would have been the best time to get into low volatility or at least the worst time to get out but unfortunately most of the market is thinking about what has done well recently.
I think low volatility it will continue to be out-of-favour but they will come back in favour if there is a market correction.
>> A lot of interesting stuff there, a lot of strategies. How do you build a team to run all these kind of strategies?
What kind of backgrounds do your people have?
>> So when I joined the team, 17, 18 years ago, most of the people had backgrounds in finance and economics. We all have Masters degrees and in some cases PhD's. We had one PhD in physics.
It was an exception because the person was working on bond models and fixed income models in general.
And nowadays, I would say that we have diversified the kind of background quite a bit.
The type of tires that we do typically have technical backgrounds but in different fields. We have people in computer science, we have an individual with a PhD in math, we have someone to do the PhD in cognitive sciences, so quite interesting background but spent a few years in finance so they are all familiar with finance quite a bit but unlike our backgrounds from back in the days, we don't necessarily hire people in finance or economics anymore. Sometimes I joke said today I'm not sure I would be hiring myself on the team. Even though I lead the team, I was lucky to join 17, 18 years ago. But today we look for people who can do a lot of first of all they need to know how to code, that is a mandatory requirement on the team, but the second thing that we are looking at is bringing a diverse set of backgrounds so that we can complete each other when it comes to doing research projects, for example.
So we look at diversity of knowledge and skill sets.
>> That was Julien Palardy, managing Dir.
and head of quantitative and passive investing at TD Asset Management.
Now, let's get our educational segment of the day.
If you are looking to find out what stocks actually make up an index, the broker has tools which can help. Joining us undiscussed, Bryan Rogers from TD Direct Investing.
Is there a quick way and will broker that the companies can get a view of the index?
>> Yes, yes. This is one of those things that I'd really like to show because it's very simple but I think it's really powerful as well.
Especially for anybody new in investing, they are wondering, the S&P 500, what is that?
I think there 500 socks on their where the Dow Jones, what stocks are listed there?
If you are interested in how to find that, there is an easy way to do this on my broker.
There is a local area and will broker related to indexes and indices.
Let's jump over, we take a look, we see on the research tab, right from the very beginning, we find MoneyTalk Live on the overview, right next to that is indices.
You'll notice there are a number of different things here. You can chart the different indices, a number of different things to look at. One of the ones that I really love is down here, there's a whole listing of you can see the Dow Jones industrial average, the DJIA, it can takes it digging here to get used to what all of these are, but let's take a look at the quick example at the S&P 500.
If I click on the associated hyperlink, it's going to pull up this little box that has some charting information and some other basic information but at the bottom, you're going to see a number representing the companies that make up the index.
You will notice they are listed now, there's 500 in this particular case, this is a broad-based index, the S&P 500.
It's going to be listed like the ones that have numbers at the beginning up tall, I think it goes alphabetically, and to some extent you can sort many of these columns.
We may take a look at that later.
The first thing I wanted to show you is the idea that the indexes that you can select an hour on this drop-down, so there are a number of them listed. If you are interested in, for example, something related to a specific sector, like I know we have often talked about gold as an example, so looking at the global gold index. I click that and I could see all of the stocks that are part of that.
It's a really quick screen. There are other screeners in my broker but it's really fast to look at. You can scroll down, maybe you want to see banking stocks, there is TSX banks and so on.
That one doesn't work any longer.
Some you may notice they have changed chores since been altered. Go to the financials Index and that's what when you want to look at now instead of banks.
>> You're showing us the S&P 500, obviously there's a lot of names to sift through, how do we start filtering the information?
>> Yes. Quickly we will jump back over to web broker. That's one of my favourite things.
I'm going to go back to the S&P 500.
I go to the drop down and select S&P 500.
We have 500 socks. I mentioned this like a screen earlier.
You can do some basic screens. It's really powerful, especially for those who are moved who want to find a specific stock on the S&P 500 that has a certain percentage change, the ones that are up.
You mentioned that on the show sometimes, like Paramount, the value chain today.
That's one way you can filter through, dollar or percentage.
You can click on volume, the most volume, Tesla has most volume right now, Nvidia and so on.
If you go by dividend yield, if you want to find stocks on the S&P 500 that have the highest dividends. You can research it further. Once you see this on that list, you can go Exide and go to performance as well by going to the next tab.
And you can sort these also. I want to go when you're performance, which was the highest or lowest.
Don't take that as advice. Remember that past performance isn't always a guarantee of future performance. But then you can do research further as you click on each one of these symbols and it will take you into much more detail about the specific stock.
>> Great stuff as always, Bryan. Thanks for that.
>> Thanks, Greg.
>> Our thanks to Bryan Rogers, Senior client education instructor at TD Direct Investing. For more information and resources you can check out the learning centre and will broker or use this QR code to navigate to TD Direct Investing's YouTube page. Once there, you will find more informative videos.
This week's Canadian federal budget laid out more than $50 billion in new spending over the next five years.
So what could that mean for the Bank of Canada as it tries to get inflation back down to 2%?
Hafiz Noordin, VP and Dir., active fixed income portfolio management at TD Asset Management join me earlier to discuss.
>> At least some deterioration in the deficit outlook over the next few years, so that alone is not a great outcome. But when we think about it, there was some raise in tax revenue but offset by spending.
So I think net, it didn't really rock the boat too much in terms of financial markets. We did not see bond yields move very meaningfully. On the revenue side, we saw the announcement on the capital gains inclusion rate for corporations and large capital gains at the individual level. But on the flipside, we also saw more spending particularly around housing but also other areas like healthcare. That new stimulus, there are different ways of looking at the numbers, 35 billion is the net new stimulus relative to what was expected or what was baked in from the fall update in November, and that 35 billion is over the next five years. When you think about spreading that out as a percent of our GDP, it's not a huge increase. But I think the main takeaways that persisting deficits to, and not really see a path to balancing the budget anytime soon, I think that's where there has to be some questions.
>> Let's talk about that because deficits as you said, it's persistent, the timeline, there is no path back to balance. How do we read through on that?
>> Part of the budget is this debt management strategy so we have to kind of see then how are they going to fund all of this.
So the big high-level numbers that we saw in terms of the amount of debt that will need to be issued this year is about 500 million, so it sounds massive, but we always have to adjust for how much of that is just debt ruling over, so how much debt is maturing and this coming fiscal year.
When you subtract the amount of debt that's maturing, it's about 85 million of net new issuance and then we look at how much of that is going to be in treasury notes, that's less than one year bills, versus bonds that are issued at two-year, five year, tenure and 30 or 10 years. Back and start a pressure bond yields higher.
The amount of bonds that will be issued this year is about 230 million.
Analysts in general were expecting to 42 to 50 million so it's a bit lower-than-expected.
From that perspective, the issuance strategy is still relatively benign. It's not, again, rocking the boat too much in terms of the volume investors were accepting.
>> The last time we heard from Tiff Macklem, I make it sound like it was a million years ago but it was during the budget, he said, we are still holding where we are right now. Issued a possibility for cut? It's not impossible.
The market is thinking July but the conversation I had, maybe it was with you, they are going to see a federal budget before they decide. We are now on the other side of the federal budget.
Is there anything in here that might change Tiff Macklem's perspective?
>> They will obviously have some longer-term perspectives that might be impacted when it comes to the amount of government spending and the impact on GDP, perhaps a bit of inflationary impact.
But the other thing that we got yesterday was the CPI print for marching Canada which missed to the downside so the full day yesterday, we had a meaningful bond rally in Canada wall US bonds were selling off.
I think when we look very near term which is probably what the BOC is going to focus on more now because the budget wasn't meaningfully different, they are going to look at how to extrapolate the inflation data and monitor that. The headline and core inflation book came in at about 2.9% year-over-year as of March, so we are just now tipping below 3% and I think from that perspective, it is consistent with their narrative around declining, gradually declining inflation and I think importantly the momentum and inflation is definitely declining to the extent that June is still very much on the table.
>> I think that Tiff Macklem was part of a panel discussion with Jerome Powell. I think I saw Bill Morneau to, I was watching from the corner of my eye. It was on the TV and were focusing on other things.
It's not often that we get reactions from both of these figures on the same day. But he seemed pleased.
>> I think he still balanced that knowing that there still some data to come.
We are talking about you and so there are still the data release for the rest of April and May.
They will be looking for consistency in this trend that by June, if we are seeing this disinflation continue, if it's in the more than 2 1/2% area, I think that would definitely be more consistent with the idea that cutting to at least get off the maximum policy level is reasonable.
And that is in stark contrast to what Jay Powell is facing. I think so far the data is supportive, they just want to see the consistency.
>> A wild card here, that was one thing if you wanted to quibble with that report, he stripped down to the core measures, things are moving the way the BOC wants, the headline is shelter costs and… >> I think there is always an amount of volatility and that's why we have this core measure and I think at the end of the day, even the headline level including energy and food, still just dipping below 3%.
I think there has been a more recent increase in gas prices for sure that could start to filter in, but I think knowing that there's still a lot of volatility around what's driving oil prices, we know that there is obviously concerns in the Middle East that are impacting your term supply expectations, at the same time, we are seeing strong US growth so the demand for energy has been increasing.
We see that bouncing commodities, it hasn't been so strong that it's really impacting inflation expectations, so how much are consumers expecting inflation to increase. That's the one that the BOC really has to watch to know that there is a concern and that they have to actually will demand down a little bit more.
>> That was Hafiz Noordin, VP and Dir., active fixed income portfolio manager at TD Asset Management.
In addition to that new spending, the budget also included changes to capital gains tax were wealthy individuals and corporations.
Nicole Ewing join me earlier to discuss.
>> It finally happened, we saw change to the capital gains rate.
Current capital gains inclusion rate is 50%, so you need to include 50% of the capital gain and your taxes and you are subject to tax on that amount. What's changing is for trusts and corporations, that rate will change to two thirds. You will need to include two thirds of the capital gain and be taxed on that amount.
For individuals, that two thirds rate will only kick in one see you are above the $250,000 threshold.
Under $250,000, you are still subject to the 50% inclusion rate. Above that, you will be subject to these new rules as of June 25, 2024. Those new rules will apply.
Over 250,000, we have a two thirds inclusion rate for individuals.
>> Let's talk about June 25 this year when those new rules would kick in. Does that complicate things when it comes to filing 2024 taxes for the 2024 tax year?
>> There will be some transitional rules but we know there will not be a prorated amount for 2024 so that hundred and $50,000 will apply.
It will make it perhaps a little bit complicated for individuals when it comes to their taxes but this is why we seek the advice of experts on this, the details on the transaction will have to be dug into a little bit more over the coming days but with any change, anytime there is a change, is going to requires some adjustments to our thinking and planning.
>> You raise an important point. As people look at this and if it does apply to them, the time to talk to a professional about what does it actually mean for me and my strategies.
>> What we know is that according to the release, it is .13% of Canadians who are going to be subject to this and they would have an average income of $1.42 million, so those are the ones who are expected to be caught by this and 12% of corporations and trusts are expected to be facing higher inclusion rates. This is not going to apply to very many individuals but certainly for those to whom it does apply, they would want to get that expert advice, perhaps not only on how to file the taxes but maybe some planning going forward about the types of income sources that they would want to be receiving and whether there is any changes to the structure of their cash flow or income that they want to be thinking about.
>> Alright so that's capital gains tax rules, which as you said, every year, we go into the budget with the idea that there could be a change, now we have had it delivered. Great breakdown.
We have talked a lot about the alternative minimum tax, some different focus here I guess when it comes to charitable donations. What's going on?
>> It looks as though the government has responded to some feedback that when these rules were announced, there was some pushback on them because essentially we were going from $40,000 subjected to 173,000 so very, very increased amount significantly to what sort of income would be subject to this alternative minimum tax. What ended up being caught there though was charitable donations and it was caught in a way that there was some concern frankly that it would impede or prevent maybe some people from making charitable donations that they otherwise would have wanted to be making because the alternative minimum tax would be a factor that would be considered. So what these rules do then is change, the proposals change the amount of the tax treatment of charitable donations so individuals can claim 80% as opposed to the previously proposed 50%. We would also be able to fully deduct guaranteed income supplements, social assistance, Worker's Compensation amounts, fully exempt employee ownership trust from the regime and allow some of the disallowed credits from the regime where you're not going to get credit for the credits and those have been expanded as well.
It appears as though the government has made some adjustments to this regime and is still going forward with the changes to the alternative minimum tax, but for charitable donations, they have changed it to 80% as opposed to 50% credit for that.
>> Interesting things there. Let's talk about some measures for business owners.
The lifetime capital gains exemption when you sell a small business. What's happening here?
>> The lifetime capital gains exemption, you are able to not pay tax on the portion of the amount that you sell that has been it was essentially indexed up to $1 million for many years. It is increasing to 1.25 so where the lifetime capital gains exemption is increasing to 1.25 million.
That will essentially give folks an additional amount to be able to not pay tax on.
That only applies to certain types of shares of certain types of corporations.
There are a number of rules.
There are rules about how long the shares need to have been held for, the types of businesses, the assets and holes, whether or not it has significant passive income or retained earnings, so again this is where we do want to have tax professionals helping us ensure that if you are going to be claiming that lifetime capital gains exemption that you will meet the qualifications for those who do whereas we are seeing an increase in the amount that is going to 1.25. It will resume indexing for a number of years, it will resume that indexing in 2026.
>> Okay, let's take on business owners.
Something called the Canadian entrepreneurs incentive. Tell me about that.
>> This is really interesting because in addition to the lifetime capital gains exemption, this new exemption is designed for entrepreneurs and it reduces the tax rate on capital gains, the disposition of qualifying shares, it reduces it by half of the otherwise, the capital gains inclusion right that would otherwise apply.
Either we have the 50% inclusion rate or the 66% inclusion rate, but that is now going to allow for some additional reductions of the capital gains amount that an entrepreneur would need to pay, and the limit is going to go up to $2 million. It will be phased in in increments of $200,000 beginning in 2025.
And there's a number of conditions. With all the sorts of things, there are a number of conditions that need to be met but what's interesting about this one to me was that there is a requirement that the individual who is making the came must be a founding investor at the time that the Corporation was initially capitalized which really does distinguish this as a feature for entrepreneurs as opposed to maybe those who acquired shares and a private corporation but were not necessarily there from the ground up.
An interesting development.
>> That was Nicole Ewing, director of tax and estate planning at TD Wealth.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function.
Gotta view here of the market movers. We are starting with the TSX 60 by price and volume.
You can see that we've got some green on the screen and the energy sector. The price of crude is holding steady just a little shy of 83 bucks per barrel at this hour. We woke up to lose that apparently Israel did launch a retaliatory strike against Iran for the actions of last weekend. Initial report seemed to be that the strike itself was not that big. The response from Morin muted so far. Market seemed to be calmer. The price of oil spiked on initial reports right now about $83 but the energy needs are holding in.
Enbridge is up almost 2%, Suncor up 1.5%, some green on the screen in that area.
More of a mixed bag when it comes to the material space.
We have the price of gold up $16 per ounce right now, a little shy of 2400 bucks per ounce, Kinross is up but a little more muted in other parts.
South of the border, it's been a choppy week for the S&P 500 and for Wall Street.
Right now the S&P 500 is down just modestly.
Looks to be the chipmakers again.
There is some strength of the Wall Street financials. Nvidia is down, AMD down.
It's been a bit of a bumpy ride recently.
As always, make sure you do your own research before making any investment decisions.
stay tuned. Monday show, Michael Craig, Managing Director and head of asset allocation at TD Asset Management is going to be our guest and you want to take your questions about asset allocation.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. On behalf of Mia and Anthony in front of the camera and everyone behind the scenes who brings you the show every day, thanks for watching. It's been a busy week.
It'll be an interesting one next week. We will see you then.
T [music]
