Many questions have been asked about how the government will cover the debt that they created from the “Covid” relief plans. One very talked about and highly possible change will be to capital gains tax. Currently, Coporate or Personal capital gains are taxed using 50%.
$20,000 of capital gains in 2020.
Assume your tax bracket is 50%.
$20,000 X 50% (capital gains rate) X 50% (tax rate) = $5,000 taxes owning
$20,000 X 75% (new capital gains rate) X 50% (tax rate) = $7,500 taxes owing
The larger and better performing the portfolio, the larger the taxes owing will be.
This will also complicate and increase taxes on death.
This is not set-in stone, but it is a strong possibility (some variation at least). Don’t worry I won’t leave you hanging.
SOLUTIONS TO SAVE ON CAPITAL GAINS
Establish a PPP (Personal Pension Plan)
For those that are Incorporated I would recommend establishing a PPP. TAX FREE GROWTH, FEE DEDUCTABILITY, LARGER DEPOSIT LIMITS.
Implement a FFIRP/IRP
For both individuals and those with corporations I would suggest implementing or increasing CIRP/IRP (Insured Retirement Plans). TAX FREE GROWTH and TAX FRIENDLY ACESS TO CASH, TAX FREE DEATH BENEFIT.
For those that are incorporated, a Critical Illness split dollar cost might be warranted.
TFAS & RRSP
For individuals, max-out you TFSA and RRSP. If this is done regularly then IRP (Insured Retirement Plan).
These loans allow one to “control” passive income between common law or spouses. Its ideal for families with clear income discrepancies and large non-registered portfolios.
With interest rates being low and possibly low for the foreseeable future having interest deductions to counter gains will help year after year.
Life insurance will definitely play a larger part of estate planning moving forward as larger estate taxes will be obvious if this tax change occurs.
Flow Through Shares
Flow through shares might be more attractive during extreme positive portfolio return years in order to reduce taxable income.
Charitable given within your estate can also help in reducing final taxes.