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Nancy Graham CPA, CA, CIM, CFP, TEP

Portfolio Manager
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  • 265 Carling Avenue,
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  • Ottawa, Ontario K1S 2E1
March-23-16

Nancy’s Eye-Witness Overview of the Pre-Budget Lock-Up: Actions and Inactions

I had the privilege of spending Tuesday afternoon in the pre-budget lock-up for the 2016 Federal Budget. By now you know that the budget was marked by significant spending initiatives – and a deficit projected to be about $30 billion. It also represented a drive by the current administration to help the middle- and low-income earners in our country.

I thought I would give you a quick summary of what happened … or more accurately, did NOT happen for you as an investor. The media floated a number of potential changes in the weeks prior to yesterday’s actual budget announcements. There was discussion about potentially capping stock options, increasing the taxable portion of capital gains, and changing the small business taxation rules, all of which could have been costly to you. Here is the actual outcome:

Stock Option Caps a Non-Starter. The Minister of Finance Bill Morneau spoke to those of us in lock-up and took questions just prior to the actual budget presentation. He was asked what happened to the conversation around putting a cap on stock options – a tax-favorable mechanism used to provide additional compensation to employees and widely used in the business “start-up” community. He said there were no measures to change the existing rules. Because their consultations with industry representatives showed that this was important to Canadian innovation, the proposed changes “were not a part of our plan.” This is very good news if you work in a company where stock options are part of the compensation package. We believe that it’s also good news to a growing and innovative Canadian economy. Our government has agreed that this is important.

Capital Gain Taxes Stay the Same. There was considerable speculation that the capital gains tax rate might increase from its current level (50% of capital gains added to your income) to as high as 66 2/3% or even 75%. This did not happen. Good news for investors.

A Continued Break for Small Business Owners and Professionals. Finally, for many Canadians who own an incorporated business, there are preferential tax rates for their “active income.” There was concern that there would be restrictions on access to this tax benefit – possibly requiring a company to have at least three employees to be eligible. This also did not happen. For small business owners and professionals who are working hard and saving diligently for retirement, this is also very good news.

In Summary, Tax Payers Can Rest Easier … For Now. So as an investor, a business owner, a saver or as all of the above, you can smile today and know that this budget’s tax measures shouldn’t significantly affect your planning strategies; they were largely housekeeping in nature.

As to how the deficit will be paid for, as taxpayers we all know we are on the hook for it. So, we are all hoping that the current government turns out to be right about its position that this budget will generate growth, and that the growth will pay for the deficit in time. Time will tell.

By: Nancy Graham | 0 comments