How the Federal Election Might Affect Your Wallet

The federal election is fast approaching, and when this post is released Canadian voters will be heading to the polls on October 21st, 2019.  Each party has several key proposals that if elected would affect the bottom line of your personal finances.  Let's take a look at some of these pledges and what they may mean for Canadians, and their wallets. For the purpose of keeping this succinct, my highlights will focus on the three most represented parties; Conservatives (PCs), Liberals, and the New Democratic Party (NDP), and ideas will be presented in alphabetical order.

Retirement

Many of the clients our team works with are either approaching retirement or already in retirement.  What this in mind I figured what better area to start with? For the Conservatives the main pledge with respect to seniors and retirement is the increase in the Age Credit by $1,000 with the belief this will put more money back in Canadians pockets.  The Age Credit is a special tax credit available to Canadians aged 65+.  The Age Credit only applies to seniors who earn $87,750 or less.  With this measure, an individual aged 65 could receive up to $150 more per year, and a couple could see an increase of $300 annually.

The Liberals have two key pledges in this area, the first being to boost Old Age Security (OAS) by an extra 10 per cent, once a person turns 75.  This would mean that todays maximum benefit of $613.53 per month would increase to $674.88. A difference of $736.20 annually. This change only effects Canadians earning under $126,058, due to the fact that beyond that amount, all OAS is fully clawed back. The Liberals have also proposed an increase to the Canadian Pension Plan (CPP) survivor's benefit. As it stands, if your spouse passes away and you are over the age of 65, you are entitled to receive 60% of your partners CPP. Today this means the maximum amount you can receive is $692.75 per month (60% of $1,154.58).  The Liberals have proposed to increase this by 25%, to $865.94 per month, a difference of $2078 annually.

Personal Taxes

"I like to pay taxes. With them, I buy civilization." - Oliver Wendell Holmes Jr.

Most would agree that some level of taxation is important.  Without it we wouldn't have the physical and intangible infrastructure required to have a thriving first world country.  Where disagreement lies is on what should be taxed, and by how much, as seen in nearly every federal election campaign ever. With regards to taxation, the Conservatives have pledged to reduce the lowest income bracket to 13.75% from 15%.

They have also pledged to reintroduce the Children's Fitness Tax Credit and Children's Arts and Learning tax credit which allows parents to claim up to $1000 per child for expenses related to sport or fitness and up to $5,000 per child for expenses related to arts and educational activities. According to the PCs, under their leadership you'll have no problems staying warm this winter.  The PCs say heating your home will become less costly with their pledge to eliminate GST from heating and energy bills.

The Liberals have put forward a plan to cap employee stock option deductions for high income earners in large and mature companies to $200,000 annually.  Stock options are typically used to attract and retain top talent.  Small start-up companies rely on this type of compensation as they often lack the ability to pay large salaries to key employees in start up stages.  

The liberal government has stated they do not believe that employee stock options should be used as a tax-preferred method of compensation for executives of large, mature companies, hence the $200,000 mark. The Liberals also intend to raise the basic personal amount.  The basic personal amount is a non-refundable tax credit that every Canadian is entitled to claim on his or her income tax return.  Today it stands at $12,069. That is the amount your income is reduced by for tax purposes.  For example, if you made $50,000, the basic credit would reduce your income that you pay taxes on to $37,931.  Prime Minister Trudeau announced during his campaign that he would raise this basic personal amount to $15,000 over four years for people earning under $147,000. The estimates provided point to savings of $585 a year for the average family.

The NDP has targeted the "1 %" and have suggested a "super wealth tax" could be applied to fortunes above $20 million. Capital gains taxes are also something the NDP is looking to change.  Currently Canadians are taxed on 50% of any capital gain.  The NDP have pledged to raise the capital gains tax to 75%, which many may remember was the rate in place between 1990 through to 2000, when it was reduced to 50%. Lastly, the NDP is looking to increase the top marginal tax rate by two points to 35%, which they estimate will raise a half a billion dollars annually.  Here in Manitoba this would mean anyone making over $210,000 will have a marginal tax rate of 52.4%

Housing

Housing is another area that has a direct and major impact on individuals and families personal finances. The Conservatives have proposed changing the mortgage stress test for first-time home buyers and reviewing the removal of the test from mortgage renewals. The stress test looks to prove that you can afford payments at an interest rate typically higher than the actual rate the lender is offering. The Conservatives have also made a proposal to increase amortization periods on insured mortgages to 30 years for first time home buyers, which effectively lowers the monthly principal you must pay back to the lender as you're able to spread the loan out an additional five years.

The Liberals are looking to offer a higher cap on the First-Time Home Buyer Incentive.  Eligible homebuyers who have the minimum required down payment for an insured mortgage can apply to finance a portion of their home purchase through a share equity mortgage with the Government of Canada.  Essentially it allows first-time home buyers the ability to reduce their monthly mortgage payment without increasing their down payment by offering them anywhere from 5%-10% of the purchase price to be included in their total down payment.

The NDP is also looking to re-introduce 30-year terms to CMHC insured mortgages on entry level homes for first time home buyers. In addition to the above, the NDP are also proposing to double the first-time home buyers tax credit.  The Home Buyers' Tax Credit is a non-refundable credit that allows first-time buyers, or those with disabilities, to claim a tax refund of up to $750 in the year they purchase the home.  The NDP promise to raise this to $1500.

Small Business

With many of our clients and readers being Small Business owners, this post wouldn't be complete without discussing each parties' pledges towards small business in Canada. The Conservatives have pledged to repeal the tax increases on small business investment that was implemented by the liberals after their last election win. Currently businesses who earn less than $50,000 of passive income can take full advantage of paying the small business tax rate of 9% on their first $500,000 of income.  

For every $1 of passive income earned inside a corporation the amount of income available to be taxed at the small business rates drops by $5.  This means that any corporation that earns $150,000 of passive income loses access to the small business rate entirely and ultimately ends up paying federal tax rate of approximately 38%.  For Manitoba corporations that means a combined federal and provincial tax rate of 50%.

The Conservatives have also pledged to exempt spouses from the Liberals tax increase on small business dividends, also known as income sprinkling.  This would mean that as a business owner, you would once again be able to allocate some income earned within your business to your spouse, and have it be taxed in their hands, effectively lowering the overall tax you pay as a family unit.

The current Liberal government has pledged to end credit card "swipe fees" for GST and HST if re-elected.  Swipe fees refer to the hidden cost paid by merchants to card-issuing banks and credit card companies for processing credit card and debit transactions. A second initiative promised by the Liberals was the creation of the Canada Entrepreneur Account, which would provide 2,000 entrepreneurs every year with as much as $50,000 to launch a new business.

The NDP says they will make it easier for family businesses to be passed on to future generations, with new legislation to end unfair tax treatment of family transfer of small businesses.

Closing

Elections are an opportunity to voice your opinion on issues that matter.  Keep in mind that these are all just proposals, some more viable then others. Although personal finances play a role, they are not the only aspect that should be considered when placing your vote.  Do your due diligence and get out there and vote for the party that you believe will move Canada towards being the best nation it can be.

- Brandt Butt, Investment Advisor

Brandt Butt is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning firm by Carson Wealth. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Brandt Butt who is an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. 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 Investment Advisor can open accounts only in the provinces in which they are registered.