One Comment About Taxation – The Capital Gains Inclusion Rate Increase Legislative Proposals are Released Along With a Not–So–Healthy Dose of Vile Politics

 

Well, at long last, we finally have some details on how the proposed capital gains inclusion rate increase will work.  

Yesterday, in a blaze of rhetoric that partisan politicians and their followers would be proud of (more on that later), Finance Minister Chrystia Freeland released some of the legislative details about the proposed change to the capital gains inclusion rate from the current 50% to 2/3s for corporations and most trusts and for individuals who have over $250,000 of annual capital gains.  

The detailed material is, not surprisingly, complex.  It’s 56 pages of mathematic gymnastics and detailed technical proposals that confirm the basic announcement made in the April 16, 2024 Federal Budget.  However, it clarifies a number of open questions that practitioners and taxpayers had.  

Some of the questions that the detailed proposals answer include:

•  Confirmation that corporations and most trusts will not get access to the $250,000 threshold.  The exception is that certain estates and trusts for the benefit of the disabled will get access to this threshold;
• Individuals will not be able to share the $250,000 threshold with their associated corporations as had been advocated for;
• There will NOT be a delay in the implementation of the proposal to January 1, 2025 as had been put forward by various organizations;
• There are no elective disposition provisions that enable a taxpayer to trigger gains with pre-June 25, 2024 effect.  In other words, if you want to trigger gains before June 25, 2024, you’ll have to trigger an actual disposition in an effective legal manner.  Various organizations had been calling for such a mechanism but it was ignored; and
• There are detailed technical transitional rules for trusts that can enable pre-June 25, 2024 trust dispositions to be treated by beneficiaries as being realized pre-June 25, 2024 thus enabling access to the lower inclusion rate in some circumstances.  Ditto re partnerships and their partners.

The above short and incomplete summary does not give justice to how complex the detailed provisions and calculations are.  The average Canadian – and even the most hardened tax specialists – will most certainly need to rely on good software to figure out the mathematics / rules.  And there will be more to come.  The Technical Backgrounder to the detailed rules states that there will be further technical changes added and updated by the end of July 2024.  Oh goodie….more to come! A summer time treat!

The release of the details of the proposal will be remembered for two things.  The first is that the government ignored almost every single recommendation made about the proposals by very qualified people and great organizations.  The Joint Committee on Taxation of the Canadian Bar Association and CPA Canada made some excellent technical recommendations.  They were mostly disregarded.  Some organizations, like the Canadian Medical Association, were very vocal about how damaging the proposals would be to its members.  They were ignored. In response to criticisms from the CMA, the Finance Minister yesterday suggested that doctors should simply ask for more monies from their applicable province since such provinces would share in the extra tax revenue increases.  Wow.  In other words, politics, as always, trumps good policy.  

The second thing that will be remembered is the offensive and misleading messaging. This included the long debunked 0.13% of taxpayers application rate, the inaccurate tax comparison of an investor’s gains to a nurse / plumber’s salary and the aggressive messaging about how the capital gains increase was necessary for “intergenerational fairness”.  Yesterday, upon release of the material, the Finance Minister went one step further and basically asserted in a bizarre and unhinged “speech” that the capital gains proposal was necessary to help deal with hungry kids and pregnant teens (in an obvious shot at potential political opposition to certain of the government’s “Robin Hood income” redistribution programs).  

The most offensive quote in her speech was the following:

“Do you want to live in a country where those at the very top live lives of luxury, but must do so in gated communities behind ever higher fences, using private health care and airplanes because the public sphere is so degraded and the wrath of the vast majority of their less privileged compatriots burns so hot?”    

This is simple – but vile – politics.  The class warfare message is dangerous and offensive.  There is no straight line to the capital gains inclusion rate proposal and “higher fences”.  There is no good tax policy at play here.  Nope, instead this is politics at its worst and unfortunately it will contribute to continued divisiveness.  

For those who believe the messaging and think that it is necessary to solve income / wealth inequality, well, think again.  Instead, this type of politics that uses the tax system in a dangerous way will contribute to reduced wealth for many.  Those who have been successful will continue to look for greener pastures outside of Canada.  The foreign investment dollars that Canada so desperately needs (and I don’t mean handing out subsidies to foreign corporations) will continue to dry up.  Entrepreneurs and start-up companies will also look elsewhere.  I’m seeing it in droves.  It’s sad.  All in the name of ugly politics.  All at a time when Canada has a significant productivity problem.  

The esteemed American economist, Thomas Sowell, is quoted as saying “The more people who are dependent on government handouts, the more votes the left can depend on for an ever-expanding welfare state”.  In addition, he has said “The real goal should be reduced government spending, rather than balanced budgets achieved by ever rising tax rates to cover ever rising spending.”

I agree.  With the above quotes in mind, it should help describe what is really at play here.  The capital gains inclusion rate increase proposal is a simple tax revenue generating measure combined with vile politics.

The economic consequences of the attempt by this government to win votes from those who don’t appreciate the importance of encouraging success will be disastrous. Mark my words.  

As a proud Canadian, I’m concerned. And sad for such divisiveness and poor policy.

 

One Comment About Leadership – Leaders Choose Community Rather Than Division

 

The disgusting and divisive class warfare language used to introduce the capital gains inclusion rate proposals by Ms. Freeland, as discussed above, is a good reminder on a basic element of good leadership.  Leaders bring people together.  Not divide them.  That’s pretty basic.  

Can you imagine a person who leads a company coming into the office one day and announces:

“All the people in the office who are wearing green, yellow and red today are losers.  If you’re not wearing one of those colors, you’re awesome.  I want you to train the losers in the office to never wear green, yellow and red ever again.  They are bad people so it’s up to you to ensure they are re-trained.”

The above example is, admittedly, pretty silly.  Such a “leader” would be dismissed quickly from their position of leadership either by a superior or by the people they “lead” since there would more than likely be a revolt.  

The silly example does, however, highlight the fact that leaders should lead by community.  It’s important to create a team that is working together and the teammates feel important. Anything a leader does thatdiminishes community and instead divides should be rejected.  Thankfully, in most real life situations, such “leadership” is indeed rejected.  The exception is politics where the modus operandi is often to divide and conquer.  

Leaders, are your actions divisive?  Or are you intentionally developing community?

 

One Comment About Economics: Continuing High Prices are Causing Consumers Angst

 

Have you gone to the grocery store lately?  Every time I do, I’m astounded at some of the prices.  A recent trip to the grocery store earlier this week had my head shaking…..$9 for a bunch of bananas.  Lettuce was outrageously expensive, etc, etc.  Such trips to the grocery store are a daily reminder of the high cost of living and the struggles that lower income people face.  

But wait?  I thought inflation was coming down and the Bank of Canada even lowered rates recently?  Yes, that’s true.  But the high cost of living remains.  The esteemed economist, Jack Mintz recently wrote about this in a recent Financial Post article:

“Governments and central banks are clearly winning the war against inflation, which is falling in most countries. Yet the high cost of living dominates polls in many places and politicians are taking heat for it from their electorates. Ask India’s Prime Minister Narendra Modi, who, despite winning re-election, lost his parliamentary majority as voters turned against his government over bread-and-butter issues. Or check with U.S. President Joe Biden and the U.K.’s hapless Prime Minister Rishi Sunak, both seeking re-election and both mired in poor polling as voters are angry over inflation and their handling of the economy.

As of April, year-over-year inflation had fallen to 2.9 per cent in the G7 countries. That sounds good compared with its peak of 7.1 per cent in 2022, right? Maybe not. The public is concerned about the cumulative change in prices since the pandemic, not just the latest inflation rate. People are not yet ready to credit governments for success in reducing inflation.

…

So why are voters so unforgiving? I can think of four reasons: incomes are failing to keep up with the loss in purchasing power; interest rates have made borrowers much worse off; taxes are rising; and the economy is weakening.”

Dr. Mintz goes on to explain all of the four reasons described above.  The article is a good explanation of some of the economics and some of the challenges that consumers face on a day-to-day basis.  I’d encourage and recommend reading the article.  

How are you dealing with sustained high prices?  Are you able to make up / increase your income for the increased expenditures that you’ve been facing?

 

Bonus Comment – Quote From Ken Blanchard – American Author and Motivational Speaker – About Leaders Building Community

 

“The greatest leaders mobilize others by coalescing people around a shared vision.”

Yep, totally agree!  Leaders, are you building community?

 

Hope you enjoyed this edition of 1-1-1…please sign up for my mailing list today.