Ep # 91 - Capital Gains Tax - Assessing Your Risk and Taking Action
Joe speaks with tax professional Kaz Nesbitt (CPA, CA, Partner at Grant Thornton LLP), and they delve into the proposed capital gains inclusion rate changes.
Joe and Kaz unpack the intricacies of capital gains taxation, clarifying how these changes could affect individuals and businesses.
What You’ll Learn in Today’s Episode
Explanation of Capital Gains: Kaz clearly defines capital gains, highlighting that they occur when assets like marketable securities or real estate increase in value upon disposal.
Proposed Changes: Joe and Kaz discuss the proposed increase in the capital gains inclusion rate from 50% to 66.67% for corporations and trusts, and the introduction of a $250,000 safe harbor threshold for individuals.
Impact on Taxpayers: Kaz outlines the potential impact of these changes on taxpayers, particularly focusing on how they could affect businesses, retirees, and individuals holding assets like real estate.
Considerations for Action: The conversation emphasizes the importance of assessing individual circumstances and considering the time horizon before taking any action in response to the proposed changes.
Advice for Planning: Kaz advises listeners to approach the proposed changes with caution, suggesting consultation with financial planners and accountants to evaluate the implications for their overall financial plans and estate planning.
Ideas Worth Sharing
· “Corporations that have accrued investments. They have a portfolio of investments or marketable securities that each year, there are annual trades, and capital gains are realized. So, on an annual basis, they're now going to see that tax hit a little bit heavier at that higher inclusion rate."
· "It feels like a lot more than 0.13%. We've been getting a lot of calls from our clients that are going to see some kind of impact on it and have been trying to address it."
· "I think most significantly, at least at the individual level, I think real estate's going to be most impacted by it. There's a much larger chance that when someone passes away and they're deemed to dispose of their assets, that there could be a capital gain in excess of $250,000 and as such, subject to a higher rate of tax."
· "You always want to begin with the end in mind as much as possible, and to think, what does the big picture look like? What is your estate plan, your retirement plan, etc.? What does your time horizon look like? And start from there."
Resources in this episode
Taxing Times Ahead: Capital Gains Changes and Your
Bottom Line
Are you unsure about the impact of the upcoming capital gains tax changes? Maybe you've been told just to sit tight and wait for things to unfold, but that's left you feeling uncertain and anxious about your financial future. Let's flip the script and dive into proactive tax planning and investment management strategies to navigate these changes confidently and clearly. It's time to take control and build a solid plan for the future.
You always want to begin with the end in mind as much as possible, and to think, what does the big picture look like? What is your plan? Regardless of any current changes, proposed changes, etcetera, what is your estate plan, your retirement plan, and your time horizon? And start from there. - Kaz Nesbitt
Kaz Nesbitt is an experienced tax planning professional. Focusing on proactive strategies for long-term financial and estate goals, Kaz offers valuable insights for business owners and investors seeking to understand the implications of capital gains tax changes. His expertise in investment management and comprehensive understanding of the evolving tax landscape make him a trusted resource for navigating the upcoming changes in Canada's tax laws.
In this episode, you will be able to:
· Understand how the 2024 capital gains tax changes will impact your investments and business decisions.
· Discover the potential effects of the capital gains inclusion rate on your long-term financial goals and estate planning.
· Learn effective tax planning strategies to minimize the impact of capital gains tax on your investment returns.
· Uncover the implications of real estate transactions on capital gains tax and how to navigate them strategically.
· Explore the opportunities and challenges of investing in Canada while considering the impact of capital gains tax.
Achieve proactive tax planning and investment management for long-term financial and estate goals.
Joe and Kaz discuss the importance of proactive tax planning and investment management to align with long-term financial and estate goals. Understanding the proposed changes to the capital gains inclusion rate and its potential impact on taxpayers is crucial for individuals looking to secure their financial future. By evaluating accrued capital gains, assessing the implications of the proposed changes, and seeking professional advice, you can make informed decisions that safeguard investments and estate planning strategies. Kaz further delves into the complexities of tax planning amidst the proposed legislation changes, advising you to consider the broader context of your financial and estate plans. By taking a comprehensive approach and factoring in the potential benefits and drawbacks of increasing the capital gains inclusion rate, you can navigate the evolving tax landscape with caution and foresight. This strategic approach allows retirees and business owners to make well-informed decisions that optimize tax liabilities and support long-term financial objectives.
The resources mentioned in this episode are:
· Connect with Kaz Nesbitt on LinkedIn to stay updated on relevant tax planning topics and case studies.
· Consult a financial planner and accountant to review your retirement and estate planning in light of the proposed changes to the capital gains inclusion rate.
· Consider revisiting your estate plan and evaluating any preemptive measures that might be necessary in response to the potential changes.
· Assess the impact of the proposed changes on your overall financial plan, including the time horizon and potential tax liabilities.
· Stay informed about the latest tax planning strategies and insights by following Kaz Nesbitt on LinkedIn.
Timestamped summary of this episode:
00:00:03 - Introduction and Discussion on Capital Gains
The hosts welcome Kaz Nesbitt to discuss the upcoming changes in capital gains and how they might affect taxpayers. They dive into the definition of capital gains and the proposed changes in the budget.
00:02:24 - Capital Gains Inclusion Rate and Its Importance
Kaz explains the concept of capital gains inclusion rate and its importance for taxpayers and investors. The current inclusion rate is 50%, but there are proposed changes in the 2024 budget to increase it to 66 and a third percent for corporations and trusts.
00:04:22 - Impact on Taxpayers and Types of Assets
The discussion focuses on the potential impact of the changes on taxpayers, with a specific emphasis on business owners, corporations, and individuals. Real estate is identified as the most impacted asset by the new inclusion rate.
00:07:40 - Number of Canadians Affected and Potential Strategies
The conversation addresses the estimated number of Canadians affected by the changes and questions the accuracy of the figure mentioned by Justin Trudeau. Kaz also provides insights into potential strategies for investors and business owners to consider in anticipation of the changes.
00:12:42 - Preparing for the Future
Kaz emphasizes the importance of reassessing estate plans in light of the proposed changes, regardless of whether they are enacted as planned. He also provides guidance on weighing the decision to prepay capital gains taxes and the time value of money.
00:13:05 - Potential Benefits and Drawbacks of Increasing the Capital Gains Inclusion Rate
Discussion on the potential benefits for the government of generating more income tax revenue and the drawbacks of disincentivizing investment in Canada.
00:15:05 - Impact of Proposed Changes and Likelihood of Implementation
Uncertainty around the likelihood of the proposed changes being implemented, potential modifications, and delays. Mention of previous announcements that haven't been fully implemented.
00:16:40 - Factors Affecting Implementation of Proposed Changes
Factors such as pushback, concept of corporate integration, and submissions addressing tax rules. Uncertainty around the passing of legislation and potential modifications.
00:18:31 - Navigating Proposed Legislation and Planning
Navigating proposed legislation, evaluating the big picture, and considering alternative minimum tax for tax planning. Comparison to a potential tax trap.
00:20:25 - Advice for Retirees and Business Owners
Importance of beginning with the end in mind, evaluating estate and retirement plans, and seeking professional services for tax and financial planning. Importance of reviewing wills in light of proposed changes.