The results of the Canadian election this week mean that Justin Trudeau’s Liberal party remains in power.
The party won enough seats to form another minority government after calling a surprise election during the 4th wave of the coronavirus pandemic. The Liberals remaining in power could be worrying to some ultra-wealthy Canadians who fear that tax hikes may be on the horizon.
Federal debt is approaching $1.2 trillion, with deficits forecast until 2070. The Prime Minister and the Minister of Finance appear to be looking to introduce policies, that help to reduce the debt to sustainable levels after the pandemic. However, the Liberal platform doesn’t appear to contain expenditures to grow the economy, which is why many Canadians are becoming increasingly concerned about tax rates rising in order to reduce debt.
High-income households fear the introduction of a Wealth Tax, particularly after polls show that the majority of the public, and the major political parties are calling for the ultra-wealthy to “pay their fair share” in the form of an ‘ultra-millionaires tax’.
Will a Wealth Tax happen?
Tax fairness and class inequality were among the top concerns of voters in this election, according to Bloomberg Tax. Every major party appeared to back a redistribution of the tax burden and fewer tax breaks for the wealthy in order to reduce the wealth gap.
Jack Liu, an estate planner from MacMillan Estate Planning, believes that the latest minority government, with input from the NDP, could mean that a wealth tax proposal is on the way:
“After the most recent election, the balance of power held by a New Democratic Party in Parliament may mean a little challenged ‘tax-and-spend’ economic agenda. Notably, their platform includes more aggressive taxation on corporations and top income earners and investors, a new annual wealth tax of one percent on every dollar a family owns beyond the $10-million threshold, and a proposed 75% capital gains inclusion rate, to help pay for increased spending.”
Would a Wealth Tax work?
Although many are backing such a proposal, a paper published by the Montreal Economic Institute (MEI) deemed the notion of a possible wealth tax “a predictable failure”.
Liu also states that while raising taxes on high-net worth households may seem like a good step towards wealth equality and debt reduction, it may not work out in the way that the Liberals hope.
“The Budget Office in Parliament has warned that ‘behavioral response’ from these targeted demographics in the way of tax planning and relocation out of Canada may not help the government generate as much tax revenue as mathematically calculated based on the proposed changes.”
It is up to the political Parties to work together to generate some powerful steam to drive economic growth and get Canada out of the economic troubles the pandemic created.”
Diane Francis of Financial Post proposes that instead of introducing a one-time wealth tax for the rich, another solution would be “to rein in spending and support the private sector so it can recover.”
While a tax hike for the wealthy may not have the effect that is hoped, Trudeau stated through his party’s platform that a minimum 15% tax for the highest income bracket may be introduced in order to prevent deductions and credits from reducing their tax obligations below that threshold.
What Can you do to Protect your Estate?
There are multiple strategies that can be optimized to ensure that your estate is protected when facing a possible tax hike. Take a look at our Protect Your Estate from a Future Inheritance Tax blog for some information, and register for complimentary webinar to look more into possible strategies you can utilize.