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New 2024 federal budget
April 19, 2024
5:35 pm
savemoresaveoften
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mordko said

You’ll find an explanation here, which is both simple and pleasant. The absence of cheap labour has A LOT to do with taxes.

“Socialism Sucks: Two Economists Drink Their Way Through the Unfree World”.  

It becomes the debate of which comes first, chicken or eggs…

For the record, I only support high inclusion tax for rental properties capital gain, not proponent of high tax for high earners in general.
As for incorporated professionals not getting the 250k threshold, my feeling is mixed. I am always against targeting the rich, but is the change in inclusion patching a too generous tax hole that should not been there in the first place ? I am not smart enough to answer that.

April 19, 2024
6:17 pm
Loonie
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savemoresaveoften said

As for incorporated professionals not getting the 250k threshold, my feeling is mixed. I am always against targeting the rich, but is the change in inclusion patching a too generous tax hole that should not been there in the first place ? I am not smart enough to answer that.  

Inclusion rate used to be 75% a while back, and Libs brought it down to 50, now putting back up to 66.7. Not really a big deal. People will complain about taxes no matter what the rate; guaranteed.

April 19, 2024
6:33 pm
AltaRed
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Loonie said

Inclusion rate used to be 75% a while back, and Libs brought it down to 50, now putting back up to 66.7. Not really a big deal. People will complain about taxes no matter what the rate; guaranteed.  

It was 75% for a few short stints, and especially during the '90s when Martin had to fix the debt wall Canada was butting up against, but 50% inclusion rate has been the status quo for much of the past 40+ years. It was also Martin that dropped it back to 50% when the fiscal crisis abated.

It is true almost everyone will complain about taxes regardless of rate but higher taxes do have an impact on incentives to work harder, to have more net cash to invest in the economy, or to spend on goods and services which is what most economies GDP depend on (consumer spend), etc.

Government in this case is "making their bed" and they will have to sleep in it.

April 19, 2024
8:26 pm
mordko
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savemoresaveoften said

It becomes the debate of which comes first, chicken or eggs…

For the record, I only support high inclusion tax for rental properties capital gain, not proponent of high tax for high earners in general.
As for incorporated professionals not getting the 250k threshold, my feeling is mixed. I am always against targeting the rich, but is the change in inclusion patching a too generous tax hole that should not been there in the first place ? I am not smart enough to answer that.  

Its not a “hole”; its an opportunity to defer. Its extremely valuable to people who take over a decade to fully qualify, lose years of ability to earn and invest while gaining valuable skils and then would pay half in taxes without this opportunity. Had the marginal tax rate been less expropriatory it wouldn’t have been needed.

Not a chicken and egg issue at all. My example is an anecdote but have a strong suspicion I am not the only one. I am jacking rates up by 20% to make it a bit more worthwhile but also in the hope that some of the clients will balk and I get to reduce hours. If they don’t then I’ll jack up the rates some more. And if they all balk I am ok too. This is certainly inflationary. There is a shortage of experienced professionals who are being subjected to punitive taxation. You are removing supply while demand keeps increasing. Now… in the case of physicians, prices can’t go up. The outcome will be shortages at the time when population is getting older.

April 19, 2024
10:03 pm
HermanH
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AltaRed said

It is not artificial because the more risky ventures would almost never get funded.

It is both artificial and arbitrary; just like the silly federal government goal of 'no more than 30% of income going to pay for housing.' If one must pay 40-60% to house oneself, that is just the price to be paid. Then, you find out really what is a necessity and what is a luxury.

The capital gains tax rate could be anything from 1-99% or eliminated altogether. The investor will just makes his own revised calculation based upon the new tax environment. Of course, he will likely increase his demand for higher return from any venture and that may stifle some endeavours, but it will never totally extinguish all investment. You are correct that some riskier ventures may not get funded (at least until they become less risky.) Everything will simply shift and adjust. Without #3, the other two investment decisions will still exist.

April 20, 2024
3:50 am
savemoresaveoften
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mordko said

Its not a “hole”; its an opportunity to defer. Its extremely valuable to people who take over a decade to fully qualify, lose years of ability to earn and invest while gaining valuable skils and then would pay half in taxes without this opportunity. Had the marginal tax rate been less expropriatory it wouldn’t have been needed.

Not a chicken and egg issue at all. My example is an anecdote but have a strong suspicion I am not the only one. I am jacking rates up by 20% to make it a bit more worthwhile but also in the hope that some of the clients will balk and I get to reduce hours. If they don’t then I’ll jack up the rates some more. And if they all balk I am ok too. This is certainly inflationary. There is a shortage of experienced professionals who are being subjected to punitive taxation. You are removing supply while demand keeps increasing. Now… in the case of physicians, prices can’t go up. The outcome will be shortages at the time when population is getting older.  

As someone who makes more than a doctor and being 100% salaried, he will see the higher inclusion as fair. Don’t get to defer and compound growth impact at all.

As for jacking up ur professional rates, that’s totally different from a rental property which I was very specificially targeting. Making the total return of a rental property less attractive will deter some from even owning a rental property. Less demand in rental property = decrease in price.

Those that says otherwise, chances are they own properties that are affected. Same as those that says high inclusion, that’s because one is negatively affected. I am no different as I pay high marginal tax my entire career and even now, just that I never own rental property nor have a corporation to shield any cap gain.
And those that are not affected at all, of course target the rich, it’s just human behavior.
I have yet to meet someone that supports a tax hike that negatively affects him in a meaningful way…

April 20, 2024
4:26 am
mordko
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HermanH said

AltaRed said

It is not artificial because the more risky ventures would almost never get funded.

It is both artificial and arbitrary; just like the silly federal government goal of 'no more than 30% of income going to pay for housing.' If one must pay 40-60% to house oneself, that is just the price to be paid. Then, you find out really what is a necessity and what is a luxury.

The capital gains tax rate could be anything from 1-99% or eliminated altogether. The investor will just makes his own revised calculation based upon the new tax environment. Of course, he will likely increase his demand for higher return from any venture and that may stifle some endeavours, but it will never totally extinguish all investment. You are correct that some riskier ventures may not get funded (at least until they become less risky.) Everything will simply shift and adjust. Without #3, the other two investment decisions will still exist.  

I largely agree but here is the catch. Canada is already suffering from underinvestment. If I remember rightly, US invests twice as much per worker and Europe by a third, or something like that. As a result Canada’s productivity is really low - and the trend is that we are getting further and further behind other countries. And as a consequence our level of life is stagnating; we are also falling behind.

Given that we already have a problem, making investment environment even worse will accelerate capital outflows and make us poorer faster. Money always finds jurisdictions with better returns. Its a bit like this website. Information keeps flowing and individuals adjust where the money goes, but on a different scale.

We already have a problem and we are making it worse.

April 20, 2024
4:33 am
mordko
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savemoresaveoften said

As someone who makes more than a doctor and being 100% salaried, he will see the higher inclusion as fair. Don’t get to defer and compound growth impact at all.

As for jacking up ur professional rates, that’s totally different from a rental property which I was very specificially targeting. Making the total return of a rental property less attractive will deter some from even owning a rental property. Less demand in rental property = decrease in price.

Those that says otherwise, chances are they own properties that are affected. Same as those that says high inclusion, that’s because one is negatively affected. I am no different as I pay high marginal tax my entire career and even now, just that I never own rental property nor have a corporation to shield any cap gain.
And those that are not affected at all, of course target the rich, it’s just human behavior.
I have yet to meet someone that supports a tax hike that negatively affects him in a meaningful way…  

I don’t own a rental property. Wouldn’t even consider because, among other reasons, laws are already heavily biased against the landlords.

I have an interest in lower rent prices because current situation is untenable and will slowly kill cities like Toronto. Nor do I like escalation in homelessness.

Hurting landlords even more will reduce supply further snd therefore jack up rental prices. Its like 2+2=4 and I am done.

April 20, 2024
9:22 am
HermanH
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mordko said

I don’t own a rental property. Wouldn’t even consider because, among other reasons, laws are already heavily biased against the landlords.

I have an interest in lower rent prices because current situation is untenable and will slowly kill cities like Toronto. Nor do I like escalation in homelessness.

Hearing the horror stories about tenant abuses in Ontario just make me cringe. Some tenants are taking advantage of the 18-month delay in getting board hearings by not paying rent in the meantime then simply accepting eviction after 2 years; driving some landlords to tears.

April 20, 2024
10:20 am
RetirEd
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Canada's low R&D investment compared to the US is in large part a result of our economic structure. Mature resource industries have less R&D going on because the opportunities to benefit are more limited. And, again, when heavy investment does help Canadian industries, the corporations involved are usually quick to sell out to foreigners. Tar sands and mining are frequent examples.

savemoresaveoften: I've been watching rent-vs-own comparisons for decades. Which comes out ahead depends on location and interest rates. There's no hard-and-fast rule. Like deciding when to take pensions, it takes careful analysis and will always be at the whim of unknown futures.

But I have always agreed that:

Landlords bidding up rental properties and renters pay high rent their working life and owns nothing at retirement does not sit well with me. If rental property capital gain are ultimately taxed at 100%, there is less incentive to pay up for rental properties, supply and demand will drive price down and benefits more people to be able to own vs rent.

Real estate is an overly favoured investment, and we all suffer for that. As do the property owners stuck without musical chairs in the periodic bubble crashes.

mordko:

So, in your logic increasing taxes on X means the service provided by X will get cheaper and more readily available. Interesting.

Hey, it happens in assorted markets from time to time. Particularly in overvalued ones and those with price elasticity. Increasing prices on booze, for example, is known to cut demand, and that has often led to price cuts and promotions. Tax policies are very often selected to manipulate markets in ways governments think beneficial.

HermanH: A loss is a business expense. Business expenses are deductible from monies earned. Not deducting input costs would render most businesses unviable.

Lack of government financing of all sorts of regulatory tribunals is a failure of government. Same with refugee claims, rental tribunals, human rights complaints, etc.

RetirEd

April 20, 2024
1:11 pm
HermanH
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RetirEd said
Increasing prices on booze, for example, is known to cut demand, and that has often led to price cuts and promotions.

It didn't work with cigarettes. Taxes just increased smuggling and violence on the Great Lakes forced those taxes to be repealed.

April 20, 2024
1:34 pm
Alexandre
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In my opinion there is an overreaction to minor change in Canadian tax policy. Not just here on this forum, but in media, too.

Tax policy is the tool that government can, and should, use. Did government use it wisely this time? Time will tell.

April 20, 2024
3:42 pm
AltaRed
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Fair enough but this change, along with a number of other changes in the last 5 years, have been headwinds to our professionals (CCPC), small business and major corporations alike. There has not been any positive breaks that I know of that would encourage innovation and investment in this country.

When will the weight of all those straws cause an acceleration of departure from this country?

I have no skin in this game other than I am a senior boomer and I see this is not looking good for my Gen-X children and their children. If GDP per capita continues to slide, the country is not going to be able to pay for all these services and our standard of living will decrease. Tax policy in this budget should have been the other way around, i.e. targeting ways to increase innovation and productivity given recent metrics and pulling back on the fluff.

April 20, 2024
4:31 pm
Bill
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Reading this thread as a whole it seems to me the communication gap is that there are basically two sides with each taking a different approach, i.e. one group focusing on growth of the economy, encouraging investment, and one focusing on from where to grab more tax revenue (e.g. "the rich", large corporations, etc).

April 20, 2024
5:02 pm
savemoresaveoften
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mordko said
Hurting landlords even more will reduce supply further snd therefore jack up rental prices. Its like 2+2=4 and I am done.  

Landlord does not control supply. They don’t build the unit that can be purchased or rent out. They simply bid up the existing units, that makes purchasing unaffordable, forcing more to rent, as down payment and mortgage becomes out of reach. A higher unit price equates to a higher rent. It is naive to think landlord will charge a lower rent if it’s tax at a more favourable level.
I am done as well.

April 20, 2024
7:01 pm
AltaRed
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Bill said
Reading this thread as a whole it seems to me the communication gap is that there are basically two sides with each taking a different approach, i.e. one group focusing on growth of the economy, encouraging investment, and one focusing on from where to grab more tax revenue (e.g. "the rich", large corporations, etc).  

That is a pretty good summation. The bottom line is our businesses and corporations invest the capital to generate goods and services and provide jobs. Without a healthy business sector, the jobs would disappear along with all goods and services that business buys, the taxes they pay, and the jobs they provide.

Our government should be doing what it can to stimulate more investment, more growth, more production and more jobs to arrest our decline in GDP per capita. It can't happen when government keeps putting more roadblocks in the way.

Squeezing the golden goose's neck yet again is the opposite of what needs to occur. Hence why more tax is just another nail in that coffin. It is terrible tax policy despite the NDP continuing to harp on making corporations pay more. They don't seem to have any concept that the bird is going to asphyxiate someday. One cannot get tax out of something that no longer has a pulse.

April 20, 2024
7:59 pm
Loonie
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I think all the kerfuffle about the corporate tax is a tempest in a teapot. It will likely blow over, as it should. Corporations do leave the country, for various reasons, even after the government of the day, on our behalf , shells out megabucks to try to keep them , encourage them, etc. They will complain about taxes one year, salaries the next, and so on. Yeah, it's cheaper in Mexico. Wanna live like a serf? - go to Mexico.

Economically and practically, there is no end to this kind of nonsense. There is always somewhere else that businesses can threaten to move to if they don't get their way. And they'll do the same thing all over again at the next place.

The tax changes are minor in the scheme of things.

I appreciate that there is a real fear that productivity, innovation, GDP etc will suffer. However, there are a great many factors that influence these. I won't get into them here, as it's a complex issue.

As I considered these questions, I was reminded of the massive infusions that businesses regularly get for one reason or another from our governments, typically with no performance guarantees. All governments do this. I am not arguing whether they should or shouldn't, but that they do.
And then, when government wants a bit back in the form of tax on capital GAINS, they howl again.

While thinking about this, I ran into an article from the right-wing Fraser Institute. It was not what I expected. It chastises governments for these handouts and that research shows they do NOT help the economy. I can't buy all their "solutions", but that's a whole other argument.
Take a look:
https://www.fraserinstitute.org/article/governments-in-canada-spent-more-than-350-billion-on-corporate-welfare

April 20, 2024
8:04 pm
Doug
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AltaRed said

That is a pretty good summation. The bottom line is our businesses and corporations invest the capital to generate goods and services and provide jobs. Without a healthy business sector, the jobs would disappear along with all goods and services that business buys, the taxes they pay, and the jobs they provide.

Our government should be doing what it can to stimulate more investment, more growth, more production and more jobs to arrest our decline in GDP per capita. It can't happen when government keeps putting more roadblocks in the way.

Squeezing the golden goose's neck yet again is the opposite of what needs to occur. Hence why more tax is just another nail in that coffin. It is terrible tax policy despite the NDP continuing to harp on making corporations pay more. They don't seem to have any concept that the bird is going to asphyxiate someday. One cannot get tax out of something that no longer has a pulse.  

Great points, AltaRed and Bill. I agree with both of you. The federal government has long been rumoured to want to increase the capital gains inclusion rate, but hasn't found a way to do it that risks alienating voters in a major way. This may do that, but at what cost to our economy when the likes of Shopify redomicile to the U.S. and remove their TSX stock exchange listing?

Better tax policy would've been to increase the GST/HST to 7%, coupled with a significant increase in the tax-free quarterly rebate to low and modest income households, to $500 per quarter for a single individual.

It would also be nice to remove the tax free income of the Governor General of Canada, although I'm mindful this would likely require a constitutional amendment and thus not feasable.

Cheers,
Doug

April 20, 2024
10:03 pm
smayer97
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savemoresaveoften said
... If rental property capital gain are ultimately taxed at 100%, there is less incentive to pay up for rental properties, supply and demand will drive price down and benefits more people to be able to own vs rent.

As for ur other comment about $250k not a lot for selling real estate, it does not include your principal residence, it remains tax free, isnt it ?  

Do you really think that if landlords pay more tax on CG, that this will decrease demand for properties, and therefore lead to decreased rent?

What you are thinking is that increased taxes will decrease the incentive for landlords to buy more existing properties. BUT that is NOT all that landlords do. Though, it is true that there is competition for properties, created by corporate buyers, outbidding new homebuyers for example, that is only part of the equation. And though increasing taxes may help deter some competition, that too is not the whole story.

Like I asked before, where do you think rental properties come from? There are 4 sources: new construction, converting a property, e.g. from a warehouse to apt. rentals (a type of construction), subdividing an existing property from a smaller number of units to more units, e.g. a house as one unit, into multiple apartments within a house (yet another type of construction), and converting a unit from an ownership to rental. ALL these increase supply. Increased supply help prevent increases in rent.

Increasing taxes, will cause increased need to increase rent to help cover the increased cost. Also, the increased taxes is more likely to deter the small landlord from getting into or expanding their investments, because the cost base has a more significant impact for them.

But what also significantly affects rental prices is DEMAND. And what has been impacting demand? The MASS IMMIGRATION that this government has embraced in the last number of years, especially in a very tight supply market. Canada's population has seen a HUGE growth in a VERY SHORT time... not giving the supply a chance to catch up. Our population grew by over 1 MILLION in 2022, and grew by more that 430,000 in just Q3 of 2023, let alone the rest of the year (in other words, more than 1 MILLION in 2023 also), the fastest growth in over 70 yrs, causing it to exceed 40 Million.

https://www.cbc.ca/news/canada/canada-record-population-growth-migration-1.6787428
https://www.cbc.ca/news/politics/canada-record-population-growth-1.7063692

So, though the base price of a new rental is determined by the initial purchase price of a property, the ongoing rental rate is determined by the ongoing carrying costs, and more importantly, supply vs demand. And I suggest to you that the demand side is what is driving up the cost of rent far faster... because supply cannot keep up. And so, tax increases in this domain would affect the supply side... this combination can only lead to HIGHER rents.
(And yes, I recognize that there are other factors too).

And to your last question, yes, principle residence is exempt... but not cottages (since these are not principle residences) nor inherited property from parents.

April 21, 2024
4:47 am
savemoresaveoften
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I do agree demand is a big factor, disagree raising capital gain tax on rental properties will reduce housing supply. It may reduce rental supply, NOT housing supply. If property prices are lower, more can choose to own vs rent, right now they don’t have a choice due to affordability. Most posters here are old enough to outright own at least one property, and prefer to see its value keep going up. I see my house as a place to live, a roof to put over my head, not an asset as it does not generate income. It’s just a legacy for my kid when I go.

As for cottages, it is considered a luxury per our government. I am indifferent on that category.

Please write your comments in the forum.