Team Trending Canada
Finance Minister Chrystia Freeland is set to deliver the federal budget on April 16, and speculation is rife about potential tax changes. Here are five key areas to watch out for:
- Alternative Minimum Tax (AMT): The government proposed changes to the AMT in last year’s budget, aiming to target high-income individuals more effectively. These changes include raising the AMT rate to 20.5% and broadening the AMT base. However, concerns have been raised about the impact on charitable donations, as only 50% of the donation tax credit is permitted for AMT calculations. Additionally, in-kind donations of securities could also be affected. Lobbying efforts from the charitable sector may influence the final outcome of these proposed changes.
- Lifetime Capital Gains Exemption (LCGE): There’s a recommendation to increase the LCGE, which currently exempts around $1 million of capital gains from small business shares, farm, or fishing property sales. Various groups, such as the Canadian Federation of Agriculture and the Canadian Federation of Independent Business, have advocated for raising this exemption to better align with current market values and support new entrants in these sectors.
- Retirement Taxes: Suggestions have been made to adjust retirement savings rules to better support seniors and those still saving for retirement. These include increasing the registered retirement savings plan (RRSP) contribution limit and reducing minimum withdrawals from registered retirement income funds (RRIFs) for seniors, potentially allowing them more flexibility in financial planning during retirement.
- Top Tax Bracket: There’s speculation about a potential increase in the top federal tax rate, which currently stands at 33%. The NDP proposed a two-percentage-point increase in their 2021 pre-election platform, although its likelihood remains uncertain given the current political landscape.
- Capital Gains Inclusion Rate: While there’s perennial speculation about increasing the capital gains inclusion rate, recent changes to the AMT for high-income earners have made this less likely. However, if changes are announced, they could take effect immediately, prompting investors to consider accelerating any planned portfolio rebalancing to take advantage of the current inclusion rate.
In summary, the upcoming federal budget may bring significant changes to the tax landscape, particularly in areas such as the AMT, LCGE, retirement taxes, top tax bracket, and capital gains inclusion rate. Stakeholders are closely watching for announcements that could impact their financial planning strategies and investment decisions.
