The budget is coming, but we may not find out who’s picking up the tab

the-budget-is-coming,-but-we-may-not-find-out-who’s-picking-up-the-tab

Martin Pelletier: With the Liberals appearing to be gearing up for an election, tax changes may be put on hold, at least for now

Published Apr 12, 2021  •  3 minute read

Finance Minister Chrystia Freeland will table the federal budget on April 19. Photo by Blair Gable/Reuters files Canadians are finally going to be getting a look at the federal government’s books next week with the release of the budget on April 19. It is long overdue: it has been more than two years since the last budget and Canada is the only G7 country not to have tabled one during the pandemic despite running the largest deficit as a per cent of GDP among developed countries.

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Access articles from across Canada with one account. Share your thoughts and join the conversation in the comments. Enjoy additional articles per month. Get email updates from your favourite authors. This lack of transparency has caused all sorts of concerns and speculation as to just how rough a shape our balance sheet is in. Overall, it will be great to get some clarity on the size of the deficit, government spending plans for this year and most importantly, how they are going to fund it beyond issuing bonds that the Bank of Canada is printing money to purchase.

Many will be watching for pre-election goodies and plans to concurrently boost revenue. Tax expert Kim Moody, chief executive and director of the Canadian tax advisory services at Moodys Tax Law LLP, says he will be looking for statements around issues including: universal basic income; changes to the taxation of principal residences; a wealth tax; an increase in personal tax rates on high income earners; an increase in the capital gains inclusion rate to 75 per cent; and interest deduction restrictions which the Liberals campaigned on in 2019.

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Article content My colleague Michelle Connolly, a senior vice-president of advanced wealth planning at Wellington-Altus Private Wealth, thinks the government will be strategic in its approach by targeting wealthy Canadians. This could potentially include introducing a federal surtax; increasing the GST/HST; and increasing marginal tax rates for those with incomes over $200,000.

She does not believe gains on the sale of principal residences will become taxable, given that many Canadians use the proceeds to fund their retirements, but other strategies to help improve housing affordability may be on the table. These could include minimum holding times to qualify for the principal residence exemption (two years, for example) or setting thresholds above which gains will be taxes. Enforcing foreign ownership taxation is another possibility.

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Article content Maximize your tax planning before our debt-ridden government comes looking for more Archegos collapse caught sophisticated bankers off guard, but there are lessons for ordinary investors, too Why Bitcoin and Tesla are bringing back memories of the dot-com boom There is a world of pain ahead for investors who take on too much risk in this market The Liberal policy convention on the weekend certainly looked like one gearing up for an election and it will be interesting to see if any of it finds its way into the budget. Specifically, Liberal delegates endorsed massive spending programs like Universal Basic Income (UBI) despite its estimated annual cost of $85 billion, a national pharmacare program and a $100 billion “green energy” deal.

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Delegates concurrently defeated a resolution calling for an inheritance tax on all assets over $2 million and a reduction in the capital gains tax exemption by 40 per cent. These developments make us think that perhaps the tax changes will be put on hold, at least for now. But don’t count your blessings as someone other than the Bank of Canada will eventually have to pay for these massive fiscal programs, though it may take the security of a majority government until we find out who.

Martin Pelletier, CFA, is a portfolio manager at Wellington-Altus Private Counsel Inc. (formerly TriVest Wealth Counsel Ltd.), a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax and estate planning.


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