It’s no secret that in response to the pandemic, we have seen an unprecedented amount of government spending all across the world and especially here in Canada where government spending per capita has been among the highest in the G20 countries. Whether or not the amounts being spent was the right thing to do or not will be debated for years in parliament and we won’t know what the appropriate response should have been for years. I’ll leave that debate for the politicians, but something I am more interested in paying attention to is what tax rates are going to look like in the coming years. Afterall, planning for tax plays a huge role in determining financial success. So, are tax rates going up? The threat of a higher capital gains inclusion rate has resurfaced over the last few months. In recent years we know that the federal government has considered this option already and so this shouldn’t come as much of a surprise and nor is it outside of the norm given history. The capital gains tax was introduced in Canada back in 1972 with an inclusion rate which matches our current levels today at 50%, meaning you pay tax on half of your capital gains. The inclusion rate was then increased to 66.67% in 1988 and increased again to 75% in the 90’s. We didn’t see rates drop back to current levels until the year 2000 where it has remained for now. Given the fact that the inclusion rate has been higher in the past, it’s fairly easy to see that the government may consider pulling this lever an increasing the inclusion rate. Additionally, it is estimated that increasing capital gains taxes will only impact about 10% of Canadians, which may be politically appealing. What may come as a bigger surprise to some is that there are growing rumors that the government is considering applying capital gains taxes to principal residences, your home. The history of the tax exemption for principal residences dates back to 1972, the same year the capital gains tax was introduced. Previously, I had thought that a tax on people’s homes was completely off the table, especially for a Liberal government. My thoughts were that this would have too big an impact on the middle class and the federal government would avoid looking unfriendly to this group of voters. However, I now believe that this option is on the table and there are a growing number of economists who feel the same as not only would this provide additional tax revenue for the government, but it also may serve to cool down a very hot housing market which is at risk of getting out of control. Now, this doesn’t necessarily mean that the government would adopt the same tax as other capital gains for homes, there may be stipulations including ownership terms less than 5 years, or a declining tax rate depending on the number of years held etc. Trying to predict future tax rates is an impossible task as ideas that are contemplated are often never put into effect, which is why it’s also a dangerous idea to plan your taxes around what you think might happen. At this stage, I think it’s unlikely that the Federal Government will announce sweeping tax changes in the upcoming budget which is set to be released on April 19th, given that we are still very much in the middle of the pandemic with much uncertainty yet to be decided. Resist the temptation to make hasty planning decisions and instead focus on making the best tax planning decisions you can based on what we know today. But, it certainly is worthwhile keeping your plans flexible and consider strategies which can help you to shelter more of your assets from tax. Although I don’t know what exactly tax rates will look like in the future, I think it’s extremely unlikely that they are going lower. -Grant White, CIM®, CFP® Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with iA Private Wealth Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families. This information has been prepared by Grant White who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.