The results of this year’s federal election may have mirrored those from 2019, but special consideration may be required when it comes to tax planning.
“We have an unusual situation right now where we have a minority government, which means that it’s a bit uncertain as to whether or not the Liberal minority will be able to enact everything they had promised in their pre-election platform,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth, in a recent interview.
The Liberals were re-elected in September with 159 seats in the 338-seat House of Commons, meaning they’ll need to rely on the support of another party to pass legislation. MPs return to the new Parliament next week.
Golombek questioned whether the Liberal government will feel pressured to adopt suggestions from other parties — most notably, the NDP.
“Probably the first thing Canadians will be asking in terms of the new government is will there be any tax changes — and, more specifically, tax hikes,” Golombek said.
He’s watching out for two details from the NDP election platform: a higher top marginal tax rate and an increase in the capital gains inclusion rate.
The NDP campaigned on raising the top marginal tax rate, which applies to income over $216,511 in 2021, to 35% from 33%, which could put top marginal rates “in some provinces as high as 56%,” Golombek said.
The Liberal government has hiked taxes on the wealthy in the past, he noted.
The NDP also pledged to raise the capital gains inclusion rate from 50% to 75%. The higher rate wasn’t part of the Liberal platform, but that hasn’t stopped speculation that an increase could be coming.
“Could the NDP use their power and the minority government situation to influence the Liberals?” Golombek said.
Golombek is also curious to see what happens with the Liberals’ promise to introduce a new, tax-free First Home Savings Account, which is meant to help younger Canadians afford a down payment on a first home.
The new account would allow Canadians under 40 to set aside up to $40,000 toward the purchase of a first home, with no tax on contributions or withdrawals.
“It really features the best of the RRSP and the TFSA, as the Liberal platform described it: tax-free in and tax-free out,” Golombek said.
The policy’s effectiveness may depend on the account holder’s location, though. “I’m not sure that $40,000 in a market like Toronto or Vancouver is really going to help too many people in terms of a down payment,” Golombek said.
If funds held in the First Home Savings Account aren’t used for a home purchase by the age of 40, they would convert to normal RRSP savings.
“It’ll be interesting to see how this is integrated with the RRSP deduction limit on an annual basis,” Golombek said.
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