(Runtime: 3 min, 45 sec; size: 42.39 MB)
Jamie Golombek, managing director with CIBC Private Wealth in Toronto.
Probably the first thing Canadians will be looking for in terms of a new government is will there be any tax changes and specifically, tax hikes? 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 that they had promised in their pre-election platform, while at the same to time, would they feel some pressure to go along with some of the other suggestions from the other parties, specifically the NDP, to increase taxes? So two things that we’re watching for. First of all, there’s every year, a lot of speculation about the capital gains inclusion rates, which currently of course is at 50% of taxable gains, and ultimately, could that go back up to 75%? That was something that was in the NDP pre-election platform. It was not in the Liberal platform, but could the NDP use their power and the minority government situation to influence the Liberals to perhaps increase the inclusion rate?
And of course, the other thing that we are worried about from a tax rate perspective is, again, the NDP platform had an increase in the top bracket, which currently federally is 33%, to go up another two points to 35%. Again, could the NDP somehow persuade the Liberal government, which has hiked taxes on the wealthy in the past to bump up that top marginal rate federally to 35%. That would put top marginal rates in Canada in some provinces as high as 56%. So we’ll wait to see what happens on the tax front.
The other interesting proposal that the Liberals had, which will be interesting to see if they go forward with, which I have no reason to doubt that they will, is the plan to introduce a new Tax-Free First Home Savings Account. And this account is meant to help younger Canadians afford a down payment faster on a first home.
It really features the best of the RRSP and the TFSA, as the Liberal platform described it, tax-free in and tax-free out. And the idea would be that any Canadian under the age of 40 would be able to set aside $40,000, or up to $40,000, towards their first home. Just like an RRSP contribution, the amount that you contribute to the plan gives you a tax deduction. So effectively you can contribute up to $40,000 of pre-tax income to the plan. And then when you take the money out, it grows, of course, tax-free inside the plan. You can take out money tax-free as well with no requirement to repay it, unlike the amounts that you’d have to repay under the current Home Buyers’ Plan.
So again, a very interesting idea. If you don’t use the money to buy a home by the time you reach age 40, then of course this account just converts back to regular RRSP savings. It’ll be interesting to see how this is integrated with the RRSP deduction limit on an annual basis. But this is certainly an innovative way. Will it ultimately help first time home buyers buy a home? I think that all depends on what market they’re looking to buy in. 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.