New 2024 federal budget | Page 3 | General financial discussion | Discussion forum

Alexandre said

Did you not notice mostly in my phrase?

Actually, good example of unfairness of capital gain taxes.

An employee in Ontario on full time job with salary of $100,000 would pay $23K in taxes. So would doctor. Except incorporated doctor could elect to pay herself dividend instead of salary, and that will be taxed at $16K.

I understand why people who benefit from tax avoidance schemes would protect them, but there is no fairness in two jobs with same salary taxed at vastly different rates.

As well as there is no fairness in same job (physician) taxed at different rates depending on how person decided to package their employment income.  

That’s not a good example at all, largely because its false, likely designed to mislead and at best provided by someone clueless who never heard of tax integration.

An incorporated doctor will have his income taxed more than once. There will be corporate taxes which are fairly complicated. While personal taxes will be lower for the dividend-paying doctor, ignoring corporate tax is going to land you in trouble with CRA.

There are other differences (RRSP contribution room, CPP contributions), but essentially, it hardly matters if you pay yourself in the form of salary or dividend. I prefer salary because I want RRSP room and CPP.

I never thought I would agree with Trudeau on anything, but here we are:

On Wednesday morning at a meeting of the Liberal caucus, Trudeau said it isn't right that multi-millionaires are asked to pay less tax on capital gains than a teacher or electrician pays on their income.

He said the change [increasing the portion of capital gains that is taxed from 50 per cent to 66 per cent] would not affect 99.87 per cent of the population at all.

He said the change [increasing the portion of capital gains that is taxed from 50 per cent to 66 per cent] would not affect 99.87 per cent of the population at all.

Great soundbite and always cool to pander to the “tax the rich” crowd but not true.

The really rich people won’t be impacted, other than by having to pay more to their lawyers and accountants.

Middle class people with a cottage or a couple of mil in investments will be impacted unless they pay lawyers and accountants for a different way to pass on inheritance or make a sale.

Landlords will be impacted and the number of dwellings available for rent will go down impacting rents.

High end doctors, dentists, lawyers, accountants, engineers and other professionals will be impacted. These are highly qualified people which Canada is short of. Its not a huge deal in dollar terms but the messaging is clear: screw you. Some will retire early, others will leave for greener pastures. Young people will look for careers which don’t take so long to qualify for. This will impact people who use doctors, electricity, etc.

Nobody will pay more overall except for the careless, but some taxes will be paid earlier, so the government will report better news on debt for 2024. In the long term tax intake will be reduced.

Capital flight will accelerate, causing fall in productivity, more stagflation and unemployment.

Everyone in Canada will be impacted.

In short, the government has decided to tax the very folk and businesses who are the most productive in generating GDP per capita, and thus support/improve our national standard of living. Without better allocation of capital, Canada will continue to slip relative to OECD peers and that matters if we want to 'stay in the game'. I suspect the effects of this change will start to show itself in economic metrics by this time next year.

BTW Mordko, this change will also have a significant effect on our start ups and innovative ventures which rely a lot on paying their employees with stock options until such time enough revenue is being generated to boost salaries. The very ventures that Ottawa was attempting to nourish have been hit. The most creative of these can simply pick up their stakes and cross the border for a more friendly environment.

AltaRed said
The most creative of these can simply pick up their stakes and cross the border for a more friendly environment.  

A good many 'tech nomads' already do just that; select a country with the most favourable tax regime and just work remotely.

mordko said
An incorporated doctor will have his income taxed more than once. There will be corporate taxes which are fairly complicated. While personal taxes will be lower for the dividend-paying doctor, ignoring corporate tax is going to land you in trouble with CRA.

Given all the doctors, dentists and pharmacists I know have all incorporated their practice / business, I do not believe for a second that there is no benefit doing so, vs paying oneself 100% salary from the profit.
Or simply all these professionals are dumb and listen to their lawyers and accountants and pay them fee for something with zero benefit at the end ? I dont think so.

savemoresaveoften said

mordko said
An incorporated doctor will have his income taxed more than once. There will be corporate taxes which are fairly complicated. While personal taxes will be lower for the dividend-paying doctor, ignoring corporate tax is going to land you in trouble with CRA.

Given all the doctors, dentists and pharmacists I know have all incorporated their practice / business, I do not believe for a second that there is no benefit doing so, vs paying oneself 100% salary from the profit.
Or simply all these professionals are dumb and listen to their lawyers and accountants and pay them fee for something with zero benefit at the end ? I dont think so.  

There are several benefits. The first one is dealing with liability and insurance. The second one is the ability to spread your income.

A highly trained professional might be 30 years old before he is fully qualified. Up until that point he worked like crazy to learn, took summer jobs and spent, spent, spent to get education. Once he is fully qualified, he then gets much higher income than someone who can’t count to 10 but started earning at his maximum capacity at 20. At that point our doctor gets clobbered with over 50% tax on most of his income. Thats expropriation in my book. Incorporating allows him to spread his income over his lifetime. He can decide what he pays himself (either as salary or dividends, no meaningful difference) while the rest gets taxed at a corporate rate and stays invested within his corp. Its his retirement fund. His average tax rate goes down from 50%. Income and capital gains within corp are taxed too. Eventually, once retired he’ll take investments out of corp, hopefully at a tax rate below 50%. Its his RRSP. Unlike RRSP its taxed throughout but allows for some tax deferral. Our doctor had his earning life reduced and earnings per year more concentrated by starting late but incorporating allows him to push some of the earnings into the future lower income retirement years.

Up until now the effective tax on investing income and capital gains was very close to non-registered investments (by the time you withdraw the money from corp). That was deliberate. Now our doctor’s retirement savings are treated worse than non-reg for capital gains.

In my case the dollar difference is relatively small; I haven’t been incorporated all that long. But the message is blatant. Studying for a long time and working long hours gets you punished. Relax. Work part time. Retire early. Or leave. Best of all - get a government job. Poor Taxpayer will look after your retirement well. Government jobs are multiplying superfast. No liability insurance because the taxpayer carries all liability. No long hours. Everything guaranteed. This is the “middle class” the government cares for.

mordko said
the message is blatant. Studying for a long time and working long hours gets you punished. Relax. Work part time. Retire early. Or leave. Best of all - get a government job. Poor Taxpayer will look after your retirement well. Government jobs are multiplying superfast. No liability insurance because the taxpayer carries all liability. No long hours. Everything guatanteed. These is the “middle class” the government cares for.  

I agree with this 100%. Any time a tax system targets the successful, its anti productivity, thats the simple truth.
But given the poor and the middle age will always outnumber the wealthy by a huge margin, and each person gets 1 vote, every politician ends up pleasing the "majority". Politicians will think/act very differently if its not a paying job or worry about re-election, and they truly will execute whats best for the country, starting with pruning all the extra fats and silly spending in government jobs.

mordko said
Except they are incentivizing professionals to work less. They’ll get less taxes after the initial boost. Longer waiting times, etc. Sooner or later everyone will figure out that this was bad for all.  

The general public will not associate the longer wait times etc due to disincentive to work as a result of high tax. Instead will just blame doctors to be lazy, etc etc.
Just like every time any new tax policy targets banks, and lately groceries stores, the public always cheer and think it's a good move. They don't think deep enough.

The bottom line is this new, higher capital gains inclusion rate is a headwind to the very people Canada needs to grow GDP per capita. The professionals, the entrepreneurs, the innovators, the landlords, capital re-investment in the businesses and corporations that grow the economy. The impact will trickle down to affecting almost all Canadians.

Some members here simply do not want to understand it thinking it is only a tax on 0.14% of wealthy Canadians. It is a masterful con job that will affect the initiative to improve productivity and if it stays long term, it will affect capital market valuations reducing gross tax revenue, and the return performance of especially DC pension plans, RRSPs, etc.

Paul Martin was the one in year 2000 who said we had to reduce the inclusion rate to encourage innovation and capital re-investment. It had its intended effect as Canada's economy performed well during the first decade of this millennium, partly because of the incentives to do better.

I actually suspect the 66% inclusion rate will not last too many years. The effects will start to show as early as 2025 and within 5 years after that, it will be gone back to 50%. The crafty con artists in Ottawa will see a boost in capital gains taxes in 2024 because some folk will pre-maturely crystallize cap gains before the June deadline. That will allow Ottawa to avoid showing a $45B fiscal deficit for 2024-25 and thus mitigate vulnerability in the 2025 federal election. This tactic is as clever and cunning as anything I have seen from this government.

I intend to do the opposite provided I don't die in the mean time. I will defer crystallization of capital gains as much as possible until the 66% inclusion rate goes away.....and it will someday. Even though the 66% inclusion rate does not kick in until $250k of cap gains has been crystallized each year, It will be my defiant way of denying them cap gains taxes from me that they might have otherwise gotten with continuation of 50% inclusion rate. I would encourage all taxpayers who can do so (that are not incorporated) to do the same. Deny them as much cap gains as possible at least in 2024 and 2025 by deferring capital sales until at least 2026.

I have looked at my portfolio and other than cap gains from ETF T3 tax slips that I cannot control, I will NOT crystallize anything with taxable cap gains until at least 2026. Maybe by then, we will have a change in government that will kill this 66% inclusion rate sometime as early as the 2026 tax year.