Well, there ya go. The indy PBO (Parliamentary Budget Office) has confirmed what this cerebral but athletic blog told you. Trudeau fibbed. The federal deficit will be bigger, and your need to do something about it more urgent.
You may recall during the election campaign that the T2 guys admitted (a) they have no plans to balance the budget, which means spending will exceed revenues and (b) we’ll therefore be borrowing one mother of a load of money. The shortfall last year was $14 billion. Next year it’ll be $27 billion. In fact Mr. Socks forecast a deficit north of $20 billion every year during the Lib mandate.
But, says the PBO, not so fast. Deficits will actually average $1.6 billion above that, and likely a lot more if one of two things happen (and both will). First, the economy slows at some point during the next four years and, second, T2 clings to power by sleeping with Singh. NDP demands to keep the minority government afloat are expected to include some version of its pharmacare program, social housing initiatives and (yes) increased taxation on the rich people who some to this pathetic site and should know better than to be successful. The PBO admits it did not include Trudeau’s campaign promises in its projections, either. So throw in some extra billions.
Trudeau could roll the dice, cuddle up to the Bloc and avoid taking on some of the NDP baggage. But that would involve caving to another set of demands, while making Jason Kenny’s head explode. There’s no getting away from the economy, however. Growth is expected to be anemic – well below 2% for the next few years – and any expansion of the current global trade wars would shiv us. Plus, just imagine if oil prices remained low and we didn’t build that pipeline. More of Jason’s brains going airborne.
As we’ve warned you for some days now, the greatest impact of this federal spending agenda will be more taxes. Yes, residential real estate is a target. And so are incomes and investments, as well as the equity and retained earnings of small corps. The first de facto coalition government budget is about 90 days away, and may not be pretty. Unless you’re one of those commie moisters with tats, a vape pen collection, three degrees, airpods, a transit pass and a big chip, then consider going defensive.
Let’s review some of the top suggestions…
First, capital gains. The odds of the inclusion rate rising are elevated. This would be a moronic move, but under active consideration. Instead of letting you keep 50% of a gain with no tax, that might fall to 25% with the remainder being added to annual taxable income. Bummer. If you have an asset that’s grown substantially – like a family cottage or secondary rental property – it might be wise to crystallize that gain before the rules change. In terms of financial portfolios, hiking the rate would also be a negative but probably not a good enough reason for most people to cash out.
Income splitting. If one spouse makes less than the other you have a great vehicle for saving tax. Open a spousal RRSP, for example. The higher-income earner makes contributions into it and claims the full deduction from income. After three years the money becomes the property of the other spouse and can be removed at their lower rate.
Spousal loans. No brainer. Just lend whack of extra money to your squeeze and let him/her use it to invest. So long as you charge interest (the required rate is just 2%) none of the investment gains will be attributed back. Your partner can even claim the interest paid as a deduction against the investment gains.
TFSA gifts. Another way to income-split within a household. Give your spouse or adult children money they can use to invest in their tax-free accounts. There is zero attribution back to you, and all of the proceeds accumulate free of tax.
Pay the family expenses if you earn more. Let the less-taxed spouse be the family investor at their lower marginal rate. Also have a joint non-registered account. That way half the gains will attract less tax and additionally, if the cat kills you while sleeping, all of the money becomes your spouse’s property without probate or delay.
Small business dude? Don’t pay yourself only in dividends, as so many do. There’s no real tax savings plus you earn no RRSP room. For entrepreneurs without pensions and with potential creditors, registered retirement savings are a key tool for deferring and shifting tax. Also remember that Libs hate you, as demonstrated last year. The assault on retained earnings and passive income will continue so abandon that plan of stashing retirement savings inside your corp. They’re coming for you.
We’ll continue this on future days. Apparently voting has consequences. Imagine that.
Federal gross debt, 1870-2019 (in 2019 dollars)
