New 2024 federal budget | Page 4 | General financial discussion | Discussion forum

Norman1 said

risk fairness said
…

Of course the capital loss deduction is reasonable and fair, but given that deduction the additional benefit of reduced tax on capital gains is unreasonable and unfair to the majority of salaried tax payers.

There's no double dipping and there's no capital loss deduction.

Capital property dispositions are entered into Schedule 3. Between properties that are common investments (like between stocks, mutual funds, and bonds), any gains and losses are netted. 50% of the net capital gains is taxable capital gains. Taxable capital gains is added to one's taxable income.

The upcoming change is that taxable capital gains will be, instead of 1/2 of the net capital gains, 1/2 of the first $250,000 of net capital gains in a year plus 2/3 of the rest of the net capital gains in the year.  

"any gains and losses are netted" -- which effectively gives a discount in taxes owing from any capital gains to offset the losses. The rational stated in post #18 and others is that the 50% capital gains rate is justified because of the risk of loss associated with capital generating investments. My point is that the fact that only net gains are taxed already mitigates the risk of loss.

Granted that the use of the word "deduction" in the context of netting gains and losses was potentially confusing because deduction has a tax code specific technical meaning. Perhaps "risk mitigation" would have been better.

risk fairness said

Sure looks like double dipping:
1. Capital gains should be taxed at a discounted rate because the investment requires risk of loss. (dip one from of the tax base watering hole)
2. Capital losses should be offset by subtracting them from any capital gains (dip two from the tax base watering hole)

Of course the capital loss deduction is reasonable and fair, but given that deduction the additional benefit of reduced tax on capital gains is unreasonable and unfair to the majority of salaried tax payers.  

If I risk a dollar and lose it, then net made a $1 on my next investment, my wallet ends up with same money as before, why should I be taxed and what exactly do I gain from ur so called “double dip” ?
$1-$1=0. -$1+$1 also equals $0.
Don’t understand ur math nor ur lingo.
.

I've edited this to remove repeating some things others have already addressed.

Norman1:

There's no double dipping and there's no capital loss deduction.

Right. There's no capital loss deduction (which would be only at one's tax rate) because 100% of the loss can be deducted from earnings, if any. And there's carrry-forward, too.

savemoresaveoften:

And with a progressive tax system with more than 50% marginal tax, it’s a real disincentive for the average Joe to care to move up at all.

This is a frequent fallacy. It's not surprising that, since higher-income-earners by definition expend less time to earn a unit of earnings, they are still motivated to keep earning even at a lower rate. Only if they can move some of their efforts to a more profitable activity or location will there be a disincentive - and sunk costs (existing buildings, equipment and skilled staff) deter that somewhat.

I certainly agree that low taxation on housing is the main contributor to housing being an excessively attractive investment and becoming an exploitative bubble. Well, not a bubble as long as population explodes as quickly as it is right now, just a huge loss to those living in housing.

Wrayzor:

If I invest in a company's stock with my after-tax dollars and the stock increases in value (presumably because their after-tax earnings are increasing), why should I be taxed at all on capital gains? That's three levels of taxation on my original earnings/salary/wages.

If you have after-tax earnings, you have earnings, having paid the tax.

When you invest them in stock and earn capital gains, you have engaged in a second income-earning activity, and its benefits are taxable too - not the entire original investment of after-tax dollars.

Where's the third level of taxation? In the taxes paid by the stock issuer? A corporate entity pays its own taxation and isn't taxing the stockholder. Corporate entities can deduct virtually anything they spend as part of their business. Individuals spend much of their money on personal consumption - that's all taxable income that deserves no compensation.

Note that earning the income to invest takes up time if employed in a typical job. You don't have to find much additional time to earn passive income in capital gains.

The business world often cries, "Why tax success?"

Simple: there's nothing to tax in failure, and less to tax in less success.

AltaRed:

Measuring GDP in the usual manner - output value (as determined by sale price) per hour worked - will constantly vary as currency valuations and product prices vary. It's not a simple correlation between financial policy and GDP. Especially with a pandemic, which affects different sectors differently.

You also say:

As to your RE flipper, those who are making less after tax money from flipping real estate have less net cash flow to spend on goods and services.

But the people who bought their flipped properties end up with MORE to spend! Exactly as much, to be exact. This is the same result ignored in saying people move into properties they purchase, or Alexandre's point:

That argument is based on a false assumption that money taken from taxpayer simply disappears. It does not. The government spends that money. Including on social assistance.

Then you point to supposedly systemic inefficiencies in government spending. But Arrivecan or other fraud is analogous to people or businesses being bilked by disbursements to principals, bad decisions, payday loans or phone scams, or simply gambling or drinking a lot. Anyone can waste money, and governments at least try to keep track of it.

Oil sands development is profitable only due to federal and provinical subsidies and dumping environmental remediation costs in depleted and abandoned projects. Otherwise oil companies would take their money elsewhere, where oil extraction yields over twice as much oil per dollar of investment because of the huge tar-sands energy inputs.

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.

And most of those newly expanded innovative and successful companies were promptly sold to foreign entities, as with the merged companies allowed with deregulations (think the brokerage of beer businesses!).

mordko: You're ignoring that the new capital-gains tax rate will only apply to those with very high capital gains over $250,000 per year. Middle-class people and professionals will have no, or very little, affected income.

Government jobs are multiplying superfast.

Actually, privatizing and contracting out of government jobs has almost always proven to be a financial loss for the government concerned. In some situations, like health care, private contractors can extract huge profits by "buying up" employees, forcing governments to pay through the nose. That's exploitative, but nobody's figured out a way to deter it.

mordko said
RetirEd

mordko: You're ignoring that the new capital-gains tax rate will only apply to those with very high capital gains over $250,000 per year. Middle-class people and professionals will have no, or very little, affected income.

Its the other way around. People with a lot of personal wealth should be able to navigate this problem. Accountants are working on it right now. They’ll be selling assets to crystallize 249K every year.

Doctors and other high end professionals who are incorporated have no minimum threshold. 100% of their pensions within corps are impacted by this change, even if they sell $10 worth of stock. No way around this new tax for them. This new rule specifically targets doctors and other professionals.  

Cant doctor also crystallize and cap it at $249k a year ? Don’t follow the details so not sure why doctors can’t do it.

savemoresaveoften said
If I risk a dollar and lose it, then net made a $1 on my next investment, my wallet ends up with same money as before, why should I be taxed and what exactly do I gain from ur so called “double dip” ?
$1-$1=0. -$1+$1 also equals $0.
Don’t understand ur math nor ur lingo.
.  

We all agree that in most circumstances it is reasonable to tax only net gains. But Sally the salaried tax payer has no such largess working in her favour. If Sally earns $1 but has to spend it buying the food necessary for her to have the energy to invest in work she still pays tax on the full $1. There is no netting of gain in the tax treatment of her $1 earnings. The discrepancy in netting treatment creates dip #1 from the tax system in favour of the capital gains investor.

Dip #2 is the inclusion rate. The capital gains investor's net $1 is artificially reduced by the inclusion rate. Not so for salaried Sally. Her $1 is fully taxed. Hence, in effect she is helping to pay for dip #2 for the capital gains investor.

risk fairness said

We all agree that in most circumstances it is reasonable to tax only net gains. But Sally the salaried tax payer has no such largess working in her favour. If Sally earns $1 but has to spend it buying the food necessary for her to have the energy to invest in work she still pays tax on the full $1. There is no netting of gain in the tax treatment of her $1 earnings. The discrepancy in netting treatment creates dip #1 from the tax system in favour of the capital gains investor.

Dip #2 is the inclusion rate. The capital gains investor's net $1 is artificially reduced by the inclusion rate. Not so for salaried Sally. Her $1 is fully taxed. Hence, in effect she is helping to pay for dip #2 for the capital gains investor.  

Sally could work harder, get better qualifications to earn more or just save and invest harder. Like Sylvia Bloom, a secretary whose bequest to charities amounted to $10 mil or so.

Or she can choose to do none of these things. Free world.

Sally is unlikely to be helping anyone. Someone who pays $10K in taxes and gets $20K in benefits isn’t helping someone who pays $100K in taxes and gets zero in benefits. By targeting the latter person, the government is killing the golden goose who funds benefits for 5 Sallies. We are not exactly short of Sallies but we are very short of doctors.

Lodown said

I am confident Accountants will be working overtime to figure out avenues and loopholes for Professionals. Stay tuned. The Liberals also threw their friends and Professionals close to retirement a lifeline in that the new rules will only be in force in late June 2024. In the past such income tax changes were effective right after budget night.  

The lifeline is designed to help this government and report better revenue numbers for pre-election year. It brings taxation forward at the expense of future years.

savemoresaveoften said
.... A government (any government) just isn’t competent enough to spend in any responsible / sensible fashion. It does make a difference when one is not spending one’s OWN money. It’s hard wired into human behavior.  

Very true....but

savemoresaveoften said
Really only affects senior executives who gets stocks option etc, or those who makes a killing on their rental properties, I am ok with both and think it is actually a welcome initiative.
...  

but then you are ok with the gov't taking more? Who do you think will spend that money?

And $250K is NOT a killing... especially if selling real estate, including, the family cottage, the inherited family home, etc.

savemoresaveoften said

...I dont see landlords being value added or have a positive impact to both our housing situation or GDP.  

Really? Where do you think the appearance of new rentals on the market come from, whether it be through new construction, or creatively dividing up existing properties, like adding a basement suite, or subdividing a large house into multiple units?

Isn't this pretty much the same as the "stop being poor" advice given by right-wingers. I can't remember or find where it originated. Anyone? It wasn't Paris Hilton, by the way. Before the fake shirt posting.

No, its just that the claim that investing means “double dipping” because Sally does not invest is ludicrous. People make choices. If Sally can’t count to 10 and Jane can, Jane isn’t “double dipping”. Sally had an option to learn to count to 10 but she chose not to. She is absolutely free to make this choice, nothing’s wrong with it. Does not help others, hurts the overall society, we should incentivize learning and investing but she is free to make it and its not in any way a blemish on Jane.