2016 Federal Budget ReviewSubmitted by Foundation Private Wealth Management on March 23rd, 2016
Submitted by FPWM Securities
The new Liberal government delivered its first federal budget on March 22 in Ottawa.
While you’ve probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items relate to investments and taxes. In general, without getting too political, our overall opinion is that this budget favours lower income spenders and penalizes savers, in particular business owners that save. If I had a crystal ball, I might make a prediction to say that, as the deficits roll in over the coming years, this group will be considered the well to fund the spending initiatives that the Liberal Government will be proceeding with.
As expected, Prime Minister Justin Trudeau spent heavily in this budget, leading to a projected $29.4-billion shortfall this year. Will the spending measures actually boost growth? This link provides a good discussion on the topic “Experts Question Costly Liberal Plan” The good news? Part of that spending may benefit you:
- OAS eligibility returns to age 65 – great news for folks born April 1, 1958 or later.
- The Canada Child Benefit replaces the Canada Child Tax Benefit and the Universal Child Care Benefit. The CCB is tax-free, unlike before, and the government says 9 out of 10 families will receive more in child benefits than under the current system. An online calculator is available at the following link to get an idea of what this means to your monthly bottom line:
The bad news is the government also took things away:
- Switches between corporate class mutual funds will no longer be tax-free after September 2016. If you are planning to change funds, let’s talk about rebalancing prior to then. This has a major impact on individuals that save in non-registered accounts, or within their corporations, and typically these are individuals in the private sector that do not have the benefits of super-sized and publicly-funded pension plans. For these savers, just at the very time they may be looking to reduce risk prior to their retirement years, they will also potentially be faced with a deemed disposition on their investments that are shifted to lower risk options.
- The promised small business tax cut has been frozen at 10.5%. If you’re a business owner, let’s talk about other ways to save tax. The upside, if you want to call it upside, is that that for now the much-talked-about measures to replicate the Quebec system for small-business owners was not implemented. More on this topic at the following link:
- Special tax treatment for insurance policy transfers to corporations. This was a very unique option that provided business owners with a great way to transfer funds out of their corporations. This is an opportunity we have been communicating about in the past and at this point the music has stopped and the business owner didn’t find a chair. If you own a business and were planning on doing such a transfer, we should revisit that strategy, as it’s no longer tax-advantaged. More on this topic can be found at the following link:
- The Children’s Fitness and Arts Tax Credits will be phased out by 2017.
- There will no longer be education and textbook tax credits as of January 1, 2017, but the impact should be relatively minor.
I hope you find these highlights useful. In summary, I think it should be noted that some of the measures that were not implemented, but discussed, should not be considered off the table at this point. If the economy is not stimulated with the spending measures as intended, the government will be looking for ways to fill the treasury. With potentially $500 million to be gained in tax revenue simply by taxing small business with 3 three employees or less, it does not take a creative imagination as to where they might go first to get the funds.
If you’d like to discuss these or any other federal budget initiatives, and how they affect your financial plan, please don’t hesitate to contact me.
“The information contained herein was obtained from sources believed to be reliable, however, the accuracy is not guaranteed. ACPI is a member of the Canadian Investor Protection Fund”