Sandra Bussey, High Net Worth Planner, TD Wealth, speaks with Sara D’Elia about what the 2017 federal budget could mean for your stock portfolio, real estate investments and your tax strategy.
You're right, Sara. There was a lot of speculation before the budget about changes to the capital gains inclusion rate. In fact, speculation that it could go as high as 75% to the 50% that it is right now. In addition, there was a lot of speculation too about the treatment of stock options, and whether that was going to be changed. That didn't happen either. And the last one was the small business deduction, and whether or not there would be changes to which particular corporations would be allowed to take advantage of it.
So I think the fact that there was no changes in this area still means clients need to sit down with their tax advisers and look at their strategies. And now is really a good time to do it, because they're in the process of pulling together all their tax papers and looking at everything to get ready to have their tax returns prepared.
So it's an ideal time I think to sit down with their investment advisers, look at their financial plans, their investment plans, see if there's any tax strategies that they're not taking advantage currently of. Things like the tax free savings account. If they're making charitable donations, are they structuring those charitable donations as tax-efficiently as they can?
There were some changes to private corporations. What changed? What happened there?
The finance minister really signaled their concern with some of the tax planning strategies that are being used with private corporations that are really benefiting high income taxpayers. And he identified three issues that he has maybe particular concern with. One is dealing with income splitting, and that's where you're taking income that would otherwise be realized and taxed in the hands of someone paying tax at the top rate, and you're putting it over into the hands of their family members, who might be taxed at a lower rate.
The second one is where you're holding a passive portfolio investment in a corporation. The third one that he's expressed some concern with is that there are strategies out there that are basically taking regular income of a corporation-- so income that's paid out as salary and dividends-- and converting it into a capital gain that would be taxed at a much lower rate.
Now, one of the things that he's done differently with regards to these concerns is he's going to release a paper presumably I would say sometime before the end of June that's going to address these concerns, and also set out what the government plans to do in terms of legislative changes. So he's going to put it out to the tax community for them to review and make comments back to the government, and then draft legislation and final legislation will follow suit.
So I think clients that actually have private corporations, again, it's a good time to sit down with their tax advisor, take a look at their current tax planning strategies involving their corporation and whether anything needs to be changed in light of these potential proposed changes that might be coming forward.
I'm hearing a very common theme here in your responses in terms of get in front of your adviser or your tax planner and come up with a strategy. But another thing is Canada savings bonds. We learned today, they're a thing of the past. So if you hold them, what do you do? And if you know you're looking for a similar investment, what's out there?
Most Canada savings bonds have been around since 1946. And I think most of us either purchased them or had them given to us by our parent or grandparent. They were a very popular vehicle years ago. So if you actually own Canada savings bonds or you like Canada savings bonds, and I think again it's a good time to sit down with your investment adviser and to review what other alternative type investments there are out there that might be a good substitute for your Canada savings bonds. So a GIC or a term deposit, for example.
We also heard there was a beefing up of tax enforcement. So when you hear that, what are you thinking about there?
Well, I'm thinking again that the government is putting more money into the resources. So they're going to be hiring more tax auditors. They're going to be doing more audits, looking at tax transactions, and also looking at more tax compliance and making sure that Canadians are filling out the forms that they're supposed to be doing, they're reporting all of their income, that sort of thing.
That's Sandra Bussey from TD Wealth. Thank you very much for joining me, Sandra.
My pleasure, Sara.