One Comment About Taxation – The 2024 Canadian Federal Budget

 

On the afternoon of April 16, 2024, the federal government released its budget for the upcoming year.  This is the time of the year when tax practitioners and economists are busy furiously reading and analyzing the documents that are released so as to determine the impacts to the people they serve.

An analogy would be kids having limited time to grab all of the candy they can in a free candy store, eat it all quickly and then spend hours and hours throwing up from gorging themselves.

For me, I’ve spent hours reviewing the budget documents and I’ve thrown up many times (at least in my mind I have).  The short conclusion is that this is a ridiculous budget.  Massive, continued spending, no plan to reduce expenditures materially and tax measures that our country simply does not need right now.

My firm, Moodys Tax / Moodys Private Client – will dive into the more technical tax comments in their annual budget blog.

For purposes of this newsletter, I’ll keep the tax summary brief and focus on the more important details (purposely not commenting on any wasteful “green initiatives” or personal tax credit amendments):

1. There are no direct personal or corporate tax rate increases.  Thank God;

2. There are no “windfall taxes”….again, thank God.  There were rumors that energy companies and grocers might be targeted for “excess profits” but no such tax proposals are contained in the budget;

3. There is not an introduction of a wealth tax…not a surprise.  Wealth taxes are simply an old, tired idea that the radical left loves to continue to recycle;

4. The capital gains inclusion rate will increase from 50% to 66.67% for capital gains realized in the year that exceed $250K for capital gains realized on or after June 25, 2024 for individuals.  For corporations and trusts, appears to be no threshold…simple increase to 2/3’s.  This is going to throw the foundational principle of integration (in other words, the choice of legal vehicle to realize income – such as capital gains – should be neutral from a tax perspective as to where investment dollars are placed. In other words, people will be more motivated to realize capital gains at the individual level as opposed to corporations or trusts.  Again, it should be neutral.

Obviously, people will be considering crystallizing pregnant capital gains prior to June 25, 2024.  However, caution will need to be exercised for individual and trust taxpayers since the new AMT rules may have application on such triggered capital gains.  The math will need to be run.

5. There is an increase to the capital gains exemption amount to $1.25M with indexation to commence again in 2026;

6. The introduction of a new “Canadian Entrepreneur’s Incentive” which would reduce the capital gains inclusion rate to 33.33% of an individual on “qualifying shares” (which comes with a list of very specific required conditions some of which will be very difficult for the average entrepreneur to meet) to a lifetime cumulative limit of $2M (phased in over time).  This is interesting but this needs much more analysis to determine how “sweet” this initiative is;

7. Amendments to the alternative minimum tax to soften the blow when charitable donations are made with some minor other AMT amendments.  This is welcome;

8. The conditions to exempt $10M of capital gains realized on the transfer of shares of a corporation to an Employee Ownership Trust were released.  Such conditions appear very restrictive;

9. The withdrawal limit for the RRSP Home Buyers Plan increased from $35K to $60K;

10. There is a proposal to increase the CCA rate from 4% to 10% for new eligible purpose-built rental projects;

11. There is proposed changes to enable the CRA to waive withholding requirements under Regulation 105 for non-residents who carry on business in Canada but will not be subject to Canadian tax liabilities; and

12. CRA will have increased audit powers and new penalties that can be imposed for non-cooperation during an audit.

On the economic side, the projected deficit for this year is $40B….yep….huge.  The projected public debt charges for 2024-2025 is $54.1 billion projected to increase to $64.3 billion for 2028-2029. God help us.

Overall, I don’t like this budget.  While the new “Canadian Entrepreneur’s Incentive” and Employee Ownership Trusts proposals are interesting, the details need to be carefully reviewed.  To increase capital gains inclusion rates when our country is struggling with productivity is discouraging.  Would have loved to see expenditure controls rather than maintaining bloated deficits.

We need a government change.  We need serious people at the tax and economic wheel steering our country.

 

One Comment About Leadership – Good Leaders are Grateful

 

Much has been written about gratitude and the impact it can have on one’s psyche.  To be purposely aware of your gratitude by expressing it in some form – like writing it down – can have a very powerful and positive impact.

I’ll give you a personal example.  One of my character faults is that I can be very impatient with people who I think are fools.  In other words, I don’t suffer fools well.  Instead of being impatient, I could be a lot more empathetic and understanding. In order to deal with such impatience, I decided to follow the advice of a person I admire and write down, daily, what I am grateful for (which I had been doing weekly) and what I can do to work on my character fault.  I’ve been doing this exercise now for about 4 months and there has been a noticeable improvement in my impatience and expression thereof.  I haven’t totally mastered it yet but as a leader I recognize the need to get better and the expression of my overall gratitude for many things and situations has helped me tremendously.

Leaders, do you express gratitude regularly?  I’d encourage you to.  The spillover effect can have a very positive impact on many areas of your life.

 

One Comment About Economics: Estimated Public Debt Charges in the 2024 Federal Budget

 

As mentioned in the tax section above, the estimated annual public debt charges for 2024-2025 is $54.1 billion and projected to increase to $64.3 billion in 2028-2029.  Frankly, I don’t believe those numbers and if this government continues with unchecked spending, such estimates will obviously be low.

With a population of approximately 40 million, that is $1,350 for every person in Canada.  Amongst the approximately 28 million taxpayers, that is $1,930 for every taxpayer.  Roughly 50% of such Canadian taxpayers do not pay any taxation at all.  Accordingly, amongst the roughly 14 million taxpayers who pay tax, that is about $3,860 per paying taxpayer. Realistically, though, it is the higher income taxpayers in Canada – a very small group – that will pay a significantly disproportionate amount of these overall annual charges.

While the above numbers are obviously rough estimates, think about this for a second.  For all of the paying taxpayers, they are paying almost $4,000 of their taxes to public debt charges.  Canadian society will see zero benefit from such expenditures.

Increasing public debt charges are a real threat to Canada’s continued economic prosperity.

 

Bonus Comment – Quote From Roy T Bennett – Author – About Being Grateful

 

“Start each day with a positive thought and a grateful heart.”

 

Yep, totally agree!  Leaders, are you starting your day being positive and grateful?

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