The election promises that could affect your personal finances
As a financial planner, I pay close attention to federal and provincial budgets and elections. There is always a chance of changes to existing personal finance measures, as well as potential new policies. The main parties have all made interesting proposals leading up to the Oct. 21 federal vote. Here’s a look at some of them.
LIBERALS
The incumbent Liberals want to appeal to young and aspiring homeowners with policies to improve affordability. One such example is a one-per-cent tax on vacant properties owned by non-canadians who live abroad.
“We feel it is important to create a national measure right across the country based on B.C.’S success with it,” Justin Trudeau said on the campaign trail in B.C.
The tax would be a federal one that would apply in addition to any provincial or municipal taxes levied.
Despite apparent success in Vancouver, some critics question what impact the tax will have, as cities such as Toronto report relatively low purchasing by foreign buyers.
The Liberals have also proposed an increase in Canada Pension Plan (CPP) survivor benefits payable to the surviving spouse of a deceased
CPP contributor. This could be meaningful for many widows and widowers, who might otherwise receive only 60 per cent or less of the CPP pension of their deceased spouse. That said, those who already have high CPP pensions of their own may receive little to no CPP survivor benefits if they are already entitled to the maximum CPP or close to it based on their own contributions — a potential flaw in the CPP system.
The Liberals have also proposed a 10-per-cent increase in the Old Age Security (OAS) pension at age 75. This sort of staggered increase in pension benefits could be helpful and worth expanding upon to help protect against the risk of living too long and outliving one’s money.
The Liberals have also proposed tax cuts on income below $15,000, tax-free maternity and paternity benefits, and an increase in the federal minimum wage to $15 per hour.
CONSERVATIVES
Incorporated business owners will be pleased to hear income-splitting may once again be on the table if the Conservatives are elected. They have proposed allowing business owners to pay dividends to a spouse in a lower tax bracket. This previously longstanding practice came to an end as of 2018, when new strict, complex rules were put in place by the Liberal government to limit a business owner from paying dividends to other family members.
“A new Conservative government will continue to celebrate small businesses as drivers of prosperity, and not view them merely as sources of revenue,” according to Andrew Scheer.
The Conservatives have also proposed allowing first-time homebuyers to benefit from longer amortizations and lower mortgage payments, as well as easing the mortgage stress test that determines how much an applicant can qualify to borrow.
While improving affordability is appealing to many voters, critics argue that if and when interest rates rise, over-indebted borrowers may be unprepared for the higher payments.
The Conservatives have proposed amalgamating federal and provincial tax returns in the province of Quebec, a change that is long overdue. Quebec tax filers must prepare two tax returns currently, whereas all other taxpayers file a federal tax return that incorporates the provincial tax rates and credits for their province of residence.
The Conservatives have also proposed tax cuts on income below $47,630, reinstating past boutique tax credits like the children’s fitness amount, children’s arts amount, and public transit tax credit, as well as tax-free maternity and paternity benefits and tax credits for up to $20,000 of energy-saving home renovations.
The NDP have proposed a foreign buyer tax of 15 per cent to prevent investors outside Canada from driving up local prices.
Like the Conservatives, they have also campaigned on a promise to increase the maximum amortization rate for first-time homebuyers to 30 years. Right now, a 30-year amortization is only available to those with down payments of 20 per cent or more — obviously a challenge for young purchasers.
The New Democrats want to raise the capital gains inclusion rate. This would mean profits on selling non-registered investments, cottages, rental properties and possibly businesses would be subject to 50 per cent more tax payable, as 75 per cent of the gain would be included in income instead of just 50 per cent. No doubt wealthier Canadians are more likely to report capital gains income, but at the same time, this would make Canada’s capital gains tax rate one of the highest in the world.
The NDP have also proposed a wealth tax of one per cent on Canadians with assets exceeding $20 million.
“Our plan is simple,” says Jagmeet Singh. “We can afford to help people when we have the courage to ask the super-rich to pay a little bit more to fund the services we all rely on.”
The appeal of a wealth tax is someone can be extremely wealthy but arrange their affairs to have a relatively low taxable income and therefore low tax payable. The challenge is that income is easier to calculate, while things like real estate, businesses, and other assets can be complicated to value. A wealth tax could be a difficult tax for the NDP to enforce.
The NDP have also proposed national pharmacare, 500,000 new child-care spaces, and a waiver of the federal GST on rental unit construction to increase availability.
GREEN PARTY
The Green party has proposed increasing the CPP replacement ratio from 25 per cent to 50 per cent of earnings up to an annual maximum. This builds upon the Liberals’ 2019 enhancement to the CPP that will increase the replacement ratio to 33 per cent over time.
Canada’s combined maximum CPP and OAS pensions ($21,217) are well below the maximum U.S. Social Security (US$34,332) and the government pension income replacement ratios of many other countries.
The Green party has also proposed several measures such as federal student-loan forgiveness, free post-secondary education and universal pharmacare.
MERITS IN PROPOSALS
Personal finance is a small but meaningful component of all the main parties’ platforms. I can see merit in proposals presented by each of the parties, even if some are controversial.
Whoever wins, we can expect to see some of these ideas implemented this fall and as part of the 2020 federal budget next spring. Financial Post
Jason Heath is a fee-only, advice-only Certified Financial Planner at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
I can see merit in proposals (on personal finance) presented by each of the parties, even if some are controversial.