E38: Federal Budget Breakdown with Ali Spinner

This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific financial circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation of past performance, does not guarantee future returns. Today we are discussing the government, government's recent federal budget, which may induce nausea, heartburn, indigestion, upset stomach, diet. Well, you get the picture. Today on the unlimited podcast. We don't have time for this intro. Let's go. All right, well, sorry folks, you didn't hear the amazing intro music that we usually do. But this is important. We gotta jump right into it. And our guest is in high demand all across the country, country here. So we are going to talk about the new 2024 federal budget and the changes. We're very lucky to have our tax ninja back, Ali Spinner, partner in Crow Silverman's Tax Group, a member of the firm's management committee and leader of the high net worth tax practice. Many of our listeners will remember ali from episode 21, Tax Effective Giving. So you can go back and listen to that as well. So we're going to save all the bio and all the detail because we know Ali and we. It'll be in the show notes, but let's just jump right in. And so first of all, Ali, thank you so much for, for being here on short notice this morning.

Thanks so much for having me, Brian. I'm excited.

Well, you're always excited to talk tax. I know you were locked away in Ottawa, I think, when this was all happening. I forgot to mention also that you're now becoming a regular on bnn. So watch your, your session or your interview on Wednesday at 8:30am and I think we'll actually post a link to that as well because really it's a summary of what I think we're going to cover here. But you did that in six and a half minutes. And we're going to try to do this. We'll see how long we go here. This is supposed to be a little bit of a tighter hit the high notes emergency type of podcast. So, yeah, so I think what, what we want to do and if we can, if we can kindly ask for your help here is just highlight and explain some of the key changes in the budget. And I think for each, we'll try to have a little bit of a, of a flow that is sort of what is this thing and what are the current terms, what's changing? And what should our listeners be doing to mitigate any negative consequences or take advantage of some positive changes? And I would say on everyone's topic of discussion really is the increase to the capital gains inclusion rate. That probably is the biggest bombshell, maybe I would say, of the budget. So can you give us a little bit of a overview? What's, what does this mean? First of all, again, we have some listeners know this stuff really well, some listeners who, who don't, they're great at what they do, but may not know this. So. And you're really good at doing this. Back to basic stuff. So what does this mean? Capital gains inclusion rate, what does it look like today, what's changing? And then we can sort of go into things.

Awesome, awesome. That's a great way to set it up. And I will say, you're absolutely right. I had the pleasure. And I say pleasure because it really is exciting to me. I had the pleasure of being in the lockup with other tax professionals from across the country on Tuesday in Ottawa. And there certainly was an audible gasp in the room. They let us read the budget documents. We're sequestered. We can't connect to the outside world. I like to say it's the five hours that I can read the budget documents where my kids and my husband aren't bugging me. So it's great. But as soon as I opened it up, the first thing we saw, boom. Change to the capital gains. And click, inclusion rate, which is a change the tax rate. And there was a, there was an audible gasp. And I questioned whether in the room we should all participate in some screen therapy for a few minutes. But anyway, here we are, here's what it is. Here's what it means. I want to start by saying a couple of things to keep in mind. So number one, very important, we actually don't have draft legislation yet. So everything I'm going to say is based on my assumption of what we're going to see. All we have are words on a piece of paper from the government of what they intend to put forward. We don't have the law, so we haven't been able to go through yet and figure out, well, what exactly does this mean and who is it exactly going to affect? We have a really pretty good idea. But I have to say that, you know, if I come out next week and say, well, we thought this, but it's going to be that. You'll have to, you'll have to forgive me. So we don't have legislation. We're making a very, very best guess. That's number one.

And so I would say that's a really good point. And I'll echo that. This is not financial or tax advice. We are giving you an update on what to things look like as of today and some of our thoughts. But please do not run away after listening to this and start taking action without talking to your tax advisors 100%.

And even with my own clients, my advice has been please don't do anything rash. Let's wait, let's get through May. We still have to file those personal tax returns, but let's get through till May. Let's wait for the legislation and we'll take a common, measured approach to what we're going to do. The one other thing I want to mention too is that I'm going to talk in terms of tax rates. I am assuming that all of the provinces are going to follow suit. I have no idea. No one has any idea. I know that Today it's Friday, April 19th, and you know, Doug Ford is on the front of the Globe and Mail saying that he doesn't think this is a good idea to raise tax rates or raise capital gain tax rates. I have no idea if they're going to follow along or not in Ontario or any other province. My gut says they will. As an accountant, I kind of pray that they do only because it becomes exceedingly difficult to try to compute tax rates if certain provinces follow and certain ones don't, you'll end up with more provincial arbitrage as well. So I'm going to assume and talk in tax rates as if Ontario has gone along as well. And the last thing I want to say also that I, I think that some people are forgetting is that as of January 1, 2024, and again, this is also draft legislation that we're still waiting to be passed. We are actually in the world of alternative minimum tax. So for some individuals and some people who might be listening today, you may already be in a situation where your capital gains tax rate is already around 33%, whereas in 2020, in 2023, and I'll get into more of the numbers in a second. In 2023, your highest capital gains tax rate may have been closer to 26%. You may already be in a position because of this alternative minimum tax where you're paying about 33%. That's for another podcast. Let's come back to what what is, what are capital gains? So tax 101 very quickly in Canada we pay tax on appreciation of investments really at the earlier of three times when we die and we leave assets to down a generation or to somebody other than our spouse. So death, when we sell an asset to a third party and we have an actual realized gain on a, on an asset, or if we depart the country, we decide we've had enough, we're going to emigrate, we're going to leave the country and no longer be Canadian for tax purposes.

A topic of conversation that seems to be coming up more and more in the last couple days.

We'll talk about that in a second, of course. So what happens is when we, when we have one of those three events, the, the, the appreciation in the investments that we hold becomes taxable. You're allowed to own assets that grow and grow and grow in value, and that appreciation isn't taxed until the earlier of those three times. What happens up until now? Well, I should say really since the year 2000 until the now 2024, 50% of the gain is taxable. You've heard probably talk or written the paper about the capital gain inclusion rate. What it really means is that 50% of the appreciation is taxable. 50% of the appreciation is not taxable. And because you're applying 50% to the actual tax rate, which Ontario, the highest marginal tax rate is 53 and a half percent. That's how we've always ended up with this capital gains tax rate of. It's actually 26.77% in Ontario. So today, for an individual ignoring AMT for a moment, the top tax rate on capital gains is 26.77%. What the budget is proposing to do, it's taking us back to a period of time in. Actually, in 2000 was the last time that capital gains rates were this high, where Instead of taxing 50% of the gain, the government would now like to tax 2/3 of the gain. So 2/3 or 66% of the appreciation will now be subject to that top tax rate of 53.5%. And 1/3 of the gain is tax free. So the overall tax rate on that appreciation will now rise by a third from 26.77% all the way up to 35.69%. So if you look at that, it's almost a 9%, it's almost a 9% increase in absolute terms, but really it's a 33% increase in the overall rate. And that's a really big amount. Um, so effectively, if you had a million dollar gain in 2023, you'd be paying 260 odd thousand dollars of tax. And if you fast forward till when these rates were effective, if you had a million dollar gain, your tax is going to be $356,000. It's as simple as that. So that's really what we're looking at. And that's why, that's why there's a lot of talk, because that's a really big change.

Right? And you just used an example from before till now. But I think there's a little bit of a, of a twist because for individuals, they're proposing something slightly different than corporations or other.

That's an excellent point. So in my world, I often think of just the top top marginal tax rate because, yeah, we usually talk in top tax rates, but you're absolutely right. For individuals, the government is allowing annually the first $250,000 of gross gains. So forget about the percentage that you're multiplying it by. The government's allowing the first $250,000 of gross gains in any year to still be taxed at the 50% inclusion rate tax, which is 26.77. And any gains above the $250,000 limitation will be taxed at the new rate of 35.69. Now for any of your listeners who are also, who are also able to benefit from, from stock option plans, that $250,000 limitation on the capital gain rate, you have to combine both capital gains and stock option employment benefits. I'm not going to get into detail on that. But if you're subject to, if you have employee stock options, you gotta keep that in mind. But the interesting point is that the $250,000 annual limit, that's not afforded to trusts or corporations. Corporations and trusts that pay tax within the trust will absolutely have to pay these new top tax rates on $1. So I just wanna, I wanna keep with this point for a minute. If we have a $250,000 limit of gains that we can pay tax on at 26.77%, 100% going forward, maybe I shouldn't talk in percentage terms, but going forward, if you are otherwise someone who has many, many assets with large gains, or if you live off, you know, if you utilize the realization of capital gains to fund, to fund living expenses, you're certainly going to want to be somebody who's triggering the $250,000 of capital gains in your personal name annually. If you want to make sure that you use up the benefit of those marginal rates, it's no different than with My clientele and I work with high net worth clientele that even if they have no need for taxable income in their hands, perhaps they have access to cash or they have access to a shareholder loan from their corporation, which just means tax free capital they wouldn't have to pay tax on. I always make sure that my clients have on their tax return about $250,000 of income. Forget whether the source of the income, but about $250,000 of taxable income each because remember, we don't pay top tax rates on $1 and the savings of our marginal rates of tax are worth about $43,000 per person. So in what now, in addition to making sure that my clients all have $250,000 of income on their return, I'm also going to have to consider, well, should we be triggering gains in your personal hands on top of this as well to make sure that we can save from what I'll call the marginal rates on capital gains. Because this is very much a use it or lose it. And that's really up to investment and wealth managers. Brian, putting some of that work on you where every year it's going to be another in a good way, you know, another touch point, another discussion with our clients come November of you know, sometimes we, we look at loss harvesting and should we be offsetting gains and losses and all that jazz. But another discussion point is going to be okay, well where were our realized gains and losses for the year in our personal name. And perhaps we want to keep $250,000 on top. This, this has nothing to do with the other 250,000 I mentioned about 30 seconds ago to save on the marginal rates. This is just a second group of marginal rates, if you will, and it's a use it or lose it.

Yeah, you'll get a sense from some of my questions or comments. I'm not a big fan of this change as I'm sure many others aren't, although maybe the bulk of the country is, I'm not really sure. But what it, what it sounds like to me and I'd say the government is very for their goal of generating more and more tax, which I'm not going to say is a good or bad idea necessarily, but for their goal of doing it, I would say they've done this in a very smart way because what they've done is they've turned investments that you would otherwise want to just hold and build and compound into almost like a fixed income or bond type of situation where you want to be selling and realizing income or capital gains every year which is, that's excellent.

Sorry, go ahead Brian.

Yeah, I just say it's just sort of like the total opposite of what long term investing and what, what capital gains were supposed to or incentivize you to do. They've turned capital gains almost into like you have to treat some of those as like a bond paying and realize tax and every year pay a, it's like an annuity if you're lucky and you're and your investments go up. It's like an annuity for the government and a faster way to get their tax as opposed to waiting for years to get a very large tax bill even at the nicer 26% rates now they get smaller tax bills every year. Very, very smart, not cool in my mind. Very, very not good for, for investors.

Before we go to the next question, I actually just want to highlight something that dovetails exactly with what you're talking about in addition to what you just raised. And it's important to note these new capital gain tax rates aren't going to be effective until June 25th.

Right. That's what I wanted to ask you about right now.

Yeah. So this is key because if the government, you know, some people say to me well Ali, why didn't they just change the rates right away? Well if they would have changed the rates even immediately, nobody would have taken any action. Right. Because you would have said okay. Not that you'd be necessarily happy about it but you would said okay, we're in a world of higher taxes, nothing I can do, move on. But they've actually given Canadians a window of opportunity in the next two months and two months is going to go by quick and we don't have legislation so it's going to go by even quicker. But the next two months Canadians are going to have to decide whether they are going to choose to prepay tax that they otherwise wouldn't have paid. So for example, if you're an investor and you weren't planning on selling an investment, you have to make the decision now. Well wait a minute. Does it make sense to realize or crystallize the tax in that investment today and pay tax at 26 and 26.7% or am I going to let it ride, not trigger the tax and be willing to pay the higher tax down the road? And I think what you'll find, I think what you'll find when you crunch the mass in very broad strokes, a long term investor, this isn't going to change their behavior. If you are A long term holder. For example, you and I were chatting that at a rate of return of 8%, the decision point is six years. This is just, you know, on my simple math, the decision point is about, is about six years, six years out. So if you're a, a long term investor and you're planning on holding your investments for more than six years, this is not going to change your behavior. But if you're someone who likes to have flexibility to, you know, when you want to sell, when you want to sell and you want to buy, when you want to buy, or you were otherwise planning on diversifying your portfolio and then rebalancing or anything like that. Absolutely. You might, you might really be considering paying the tax today to lock in that, that existing tax rate.

That's good. Say so for listeners. There's a few things I want folks to take away from this podcast and this is the exact reason why I wanted to do this and do this quickly. What Ali has just said is a very, very critical decision point that, you know, lots of people will be thinking about, but not necessarily know how to figure out on their own. That equation that Ali has just mentioned is critical. So if you're, I'll just repeat it. You know, if, if you're a longer term investor, if you're, you know, your investments you believe will grow or compound 7, 8 or 9, 10, well, hopefully higher percentages, you're sort of looking at a five, six year decision point. The flip side is, you know, if you say, well, I want, I'm going to sell tomorrow, if you can't buy back into what you, what you just sold and you know, if it's equities or some bonds or other stuff, I guess you could. But you also have a potential to maybe be quote unquote, out of the market for a day, a week, a month, whatever it is, you might miss investment returns and have the tax drive that decision. So it is a personal decision what, what you're going to do.

Yep. One other point I want to raise as well is that the impact that these rates have on estate planning because I think that that's key as well. And that's something that looms for a lot of people. As we mentioned before, you know, the latest time that we could ever pay tax is when we pass away and we leave assets. We leave assets to somebody other than our spouse. And the issue there is that if you have, if you're elderly yourself or if you have an elderly parent and they are sitting on very large gains, you very well may Want them to crystallize, liquidate their portfolio. They could buy it back, of course, subject to all of the risks of being out of the market and all that. But you very well, depending on age and stage, you very well may be better off if you trigger the gains. Now pay the tax in the year 2024. Such what you're doing is you're prepaying tax because of course that tax would not be paid until the time of death. But if death isn't that far away, I mean, I'm sorry to talk about more of a topic, but it's true if it's that same payback period, if you're an elder, you know who's got a very elderly parent, you might be triggering gains now in order to lock in the lower rates today. Or on the flip side, even if you're not planning at all. The other thing to mention too is even if you're not planning at all, it's selling in any short amount of time. But you know that because of your investments, perhaps you're in illiquid investments, who knows. But you know what your estate tax liability is going to be eventually you have to figure out how you're going to finance that. Maybe it was insurance, maybe you were planning on liquidating certain investments or had part of your portfolio in very liquid assets. You have to reevaluate and determine do you have enough funds to finance that tax on death because the tax on death on capital gains just went up significantly.

Right. So again, I'll say the government very, very smart, as I think you pointed out.

Well, I like how you said very, put it this way. They're very, very smart in that they absolutely expect that they are going to see money coming in October 5th in 2024 to the government. If you look at the government's data in their budget, they show $19 million, I believe of, sorry, $19 billion of tax revenue coming in additional to the government as a result of this change. But the amount of cash tax that they expect in 2024 is massive and it absolutely shows that they expect people with people, corporations with gains to front load that tax. It looked about the next two to three years out and again, I don't know what all the assumptions are that goes into their modeling. They absolutely expect that many Canadians are going to take, I'll say take advantage of this window to tax their investments at the current rate and the money is going to go into the government. You know, I've been hearing a lot of talk, clients contact saying, well what if there's a change in government. A new government will come in and change this. I don't know that someone's going to be able to change this so quickly. Listen, I don't have a crystal ball. I'm. I'm not a political pundit or economist. I couldn't tell you. But what I do know is that I know the government needs money regardless of who's in power. And this might not be reversed as quickly as some people are making it out to seem. So if I was a betting woman, I think this is here to stay for a while.

Yeah, yeah. I don't think it's a super popular thing to change for, you know, the general public. What does this mean? So let's talk a little bit more about those who have corporations. Medical professional corps, lawyers, professionals, and then just, you know, business owners, et cetera. First of all, at a high level, what does this mean? And then what does this mean going forward? It's not so easy to get cash out of a corporation without losing a lot of it to taxes in the first place. But clearly the government is really trying to penalize basically everyone that has a corporation if they're going to invest through their corporation. So can you give some color around all that?

Yeah, for sure, for sure. And you know, I have a few different things to say, to say to that. So, you know, what does it mean? Higher taxes? Like, there's no question. At the end of the day, we're in an era of higher tax rates, full stop. That's what it means for the professionals, for professional corporations. So as you mentioned, who are able to benefit from corporations, now, we have to remember that being able to use a corporation to carry on your business, whether you're a professional or a regular operating business, is a massive benefit. Because if you're able to earn more money than you need to live to fund your current lifestyle, you can benefit from massive deferral. So what happens is, is, is, you know, if you were otherwise going to earn a dollar in your business, whether you're a services business or otherwise, that dollar would generally be subject to tax at 53.5% that profit. But if you're able to incorporate that dollar that you just generated a profit, if you don't need to live off of it personally, you can leave that money behind in your corporation. If you're able to benefit from the small business deduction, you only pay about 12 points of tax in the first $500,000 of profit and all profit there on or for people who don't benefit from the small business deduction, you pay tax at 26 and a half percent. That's almost a 30 point deferral. It's not a forever ever, it's not a forever ever permanent tax reduction, but it's deferral. When the money eventually comes out down the road, you pull it out, you're back to the tax that you would have paid had you earned the money in the first place as a direct individual. So what happens is that many, many professionals, whether it's doctors, lawyers, dentists, architects, engineers, accountants, real estate professionals, business owners are encouraged, or I shouldn't say encouraged, but have the luxury, the benefit of being able to use these corporations to build up effectively their retirement portfolio. And you're effectively able to invest the money that you would otherwise be giving to the government in the form of current tax. You're able to earn a rate of return on that money for the length of period of time that you can leave that money stuffed up in your corporation until you have to take that money out to live on effectively. So what, I guess what the government giveth, the government taketh away. And what I mean by that is that yes, you're still going to have the benefit of being able to defer current taxation until you need money personally, but the rate of the tax that you're going to pay on the investment income now, including capital gains, is going to be higher. So it's not great. I mean it's, you know, it's not great that we've got higher taxes. But I do think we all have to remember that we're very lucky that as professionals who can incorporate or business owners who are allowed to use corporations, the fact that we're able to benefit on that original massive deferral of 30 points of tax, tax by being able to keep our profit in our corporations and create our super RSPs, I'll call them there, that's a huge benefit. So it definitely means that there will be more tax on the returns. But there's nothing, nothing has changed with respect to the fact that we're still able to keep the money behind in the corporation.

Okay, perfect. So yeah, that's one of the answers that I was looking to find out. So if you have a corb, if you're using a corp. Yeah, not as good as it was. Well, on June 25, it won't be as good as it was today, but it's still the right strategy or potentially the right strategy for you talk to your advisors. But it's, it's, you wouldn't Change course on this strategy and start taking out a whole bunch more money from your corp to try to, you know, have.

Correct, correct. You're. Because what you have to remember, and this is what I think sometimes some of us are guilty of forgetting and I've heard this question now numerous times in the last couple of days is should I, well, should I just take everything out of the corp and invest personally? And the answer is no, because in order to get the money out of the corp, you're going to have to pay a tremendous amount of tax. Forget even the capital gains tax, you're going to have to pay dividend taxation to get that original investment out of the corporation. So I can almost with certainty say under no circumstances does it make sense to start pulling out excess cash. You know, having a fire sale of assets in your corporation just to make those investments personally. That's not going to happen. The difference could be though, for individuals who have cash personally and there, there are many people like that, everyone from lottery winners to people who inherit or to people who didn't incorporate businesses. There are many, many people with cash personally that they've made a personal investments. It is very easy to get money from yourself to put it into a corporation. Not so easy to take the money out of the corporation. I would still say as a, as a tax and estate planner, you know, not everything that I do is strictly tax motivated. There's, there's a bigger holistic view. It's an interesting question. Should you be, should the person with all of their investments in their personal name still be considering putting all, all of their investments into their corporation? Perhaps not, because perhaps there is merit to keeping some of those gains outside so you can benefit from that annual $250,000 gains exemption. One other thing I'm going to throw in there and this might, you know, this just might make all of your listeners dizzy. Hope not. We can do another session on it. But remembering things like US Estate tax, your listeners might be saying, allie, what the hell do I care about U.S. estate tax? I'm not American. Well, guess what, everyone around the world right now, if you as a single person are worth More than 13. About 13. And again, I'm not an American practitioner, but I certainly know lots about this. If you're worth more than US$13 million globally, globally. So taken all of your assets, whether they're In Canada, the U.S. france, Switzerland, doesn't matter if you're worth more than $13 million US if you have $1 of Meta shares in your RSP or your personal name, basically any in any type of investment portfolio but for a corp. Corporate investment account. So let's say in your personal name you've got shares of, you've got shares of a US based company. When you pass away, your estate is going to be subject to tax of about 40% of the gross value of the shares of that US based company. So that's, that's US estate tax for you. It's a 40% tax that everybody in the world pays above an exemption on US Citus assets, which includes Meta. All this values. Meta, Amazon, you know, the, the various examples of us.

It's okay. No, no one owns Apple. Nvidia, Meta.

No, not at all. Not at all.

Alphabet. We're, we're good.

The reason I'm bringing it up is that a very typical common planning technique is that. Well, the good news is that if you're a Canadian and you put your US assets into a corporation, God forbid one day when you, you know, maybe I'll live to 120, but if we should pass away, you won't have to pay any US estate tax on that asset because you're not the owner. It's your corporation that's the owner. They're still Canadian gains tax, but there's no U.S. estate tax. So this is all just to say that there's a lot of different levers here. It's, there's no, there's no such thing as a. You know, every client over this value must look like this or must structure like this. Everyone's, everyone's goals, objectives, values have to be factored into their estate plan to come up with the perfect solution. But the one thing I will say is that, sure, I could see there being an argument now that an individual might want to leave some, some investments outside of a corporation. They might be willing to pay Ontario probate fees. That's the little tax we pay when we pass away of 1.5% of the value of assets. They might be willing to pay Ontario probate fees at the benefit of being able to trigger some capital gains personally each year. So lots of levers, lots of math. I live for this stuff. I can't wait. But you know, the good news is there's people like me, but there you go.

So let's just end. I think that was a great overview. A couple very key decision factors, things to consider and some guidance around it, which is exactly what we wanted to do here because we haven't heard a lot of that just yet through the media or people on the news or Whatever. It's more, what are the changes? What we're, it's great to know what they are, but really quickly, people want to know and what do I do? So thanks for some of that conversation. The only last thing I'll say on this, tongue in cheek, of course, is, well, the good news is this doesn't impact almost anyone in the country. It just impacts, you know, 40,000 people. No big deal. And so I don't even know why we're talking about this, but, Ali, might there be other folks other than the quote, unquote wealthy that this, these new rules might impact?

You know, that, that's a great point.

And that was my way of being,

you know, and I, I know and it's, it's interesting that I engage with many conversations with accountants across the country. And, and, you know, and I, when I see these roles, I'm like, it impacts every one of my clients and, and you know, so be it. So I'm, I'm, I'm excited. Well, not excited, but I'm excited to talk about the changes. Do I think this actually impacts the most? It's the, it's the business owner who, who toils away, probably leads a, leads a decent life. I guess decent is relatives, but let's say, you know, lives a really solid life. You got a mortgage, maybe you got some kids in school that you're paying for, send them to camp, the whole bit, all that stuff. You know, maybe you have a few bucks at the end of the year to go on vacation. Pretty, I'll say, pretty typical. Hopefully that resonates with people. But at the end of the day, you end up with a business. You know, perhaps you're not putting money into your rsp. I see this actually quite often. People like this, they're not putting money into their rsp. They don't really have any excess cash to invest at the end of the day. What they're waiting for is that payday down the road when they sell the business and they run retire, they're going to have a lot less money to retire on. Right. Because as, as I mentioned, the tax, the tax has just gone up by 33% 1/3. If you translate it on a $10 million sale, that's an extra almost million dollars of tax. It's a million dollars less that you're going to have to spend in retirement or an investment income on to live on in retirement. I do think that those people might have lifestyle impacts or their retirement would be affected. And it's true that the government, we Know, we do have the capital, the, the capital gains exemption. So on a qualifying business, the first million dollars is tax free, and they just bumped it up to a million and a quarter. The $250,000 change really translates into, let's say, a 50, $75,000 reduction in tax. It's, it's, in the grand scheme, it's peanuts. So I, I think that people like that will be, you know, you're, you're, you're banking on retiring and selling your business. Could be, could be a dental, a dental practitioner, could be, could be an architect, could be an engineer, people. I'm thinking of different practices where, where there is a sale price at the end of the day, it could be, could be an operating business, of course, and they're banking on that large amount coming in. Call it 10 million bucks. Well, you got a million dollars left, a million dollars less in the bank to retire on. And, and I think that's going to have meaningful results. I really do.

Where I think people may forget is regular folks work very, very hard and we're lucky enough to be able to buy a cottage type of property or, you know, instead of investing. Some people don't understand the stock market or just really like real estate, so they buy, they save a ton of money and take out a big mortgage and buy a rental property. Or when you live till 80, 90 and you've socked away a bunch of money, it's not unlikely that you might pass away with, let's say, 500,000 of gains. Forget about the uber wealthy. You've saved your entire life and you have 500,000 of gains on a portfolio, you know, when you pass away. I don't know what class of, you know, wealth or whatever they call it that you'd fall into in that category, but I think a lot of people don't have to worry about it today. But my contention is this change impacts a dramatic amount of Canadians that just may not realize it yet.

Yep, I, I agree with that. The last group I'll say if I can leave with this because it's important to mention is departure tax. I haven't mentioned departure tax. When you, I, I should say I've had more calls in the last two days. I probably had the same number of calls in the last two days than I've had in the last 10 years about people wanting to leave the country. And I always joke that people talk about it all the time. I'm out, I'm leaving. I don't know where they're going. I should Say that although I do know excellent professionals that can help you determine which country you should be moving to considering tax and social life and all that type of stuff. But people, it's one of those areas where there's a lot of talk, not a lot of action. I absolutely, and this is, I think the sad reality is that there's enough people who are that upset and that frustrated who are absolutely willing to pay departure tax, meaning the gains tax on their investments now at the 26 and a half percent to get out and that future. And they are, and, and, and I'm, I'm not joking. I think I've had eight calls in the last two days of people who were perhaps on the fence before. They're seeing the productivity numbers in Canada they're not liking. And again, like everyone's politics aside, you can make your own decisions, but I think people are going to start to actually take, you know, take me up on, let's crunch those numbers and, and, and let's do this thing because they're fed up. And that's where there's shortsightedness by the government and long sightedness. And if we, if we frustrate enough people that they leave the country and yes, they pay that departure tax, they pay the 26 and a half percent on the way out. Maybe they're into AMT, maybe, maybe it's even the 32% I was talking about before. But the increase is enough for them to say, you know what, I'm fed up, I'm out, I'm going to go. Another country can have my future tax dollars and they'll probably be, be less.

Yep. And, and I've had some of those conversations as well and I'm quite certain, as you say, they, they pop up all the time and very rarely does it follow through. I'm quite certain a number of my clients won't be Canadian residents in short order, unfortunately.

Yeah.

Okay, well look, there we go. That, that was the, I think the crux, that was the sort of focus of this discussion. There's a couple other changes I don't think we need to go into anywhere near the level of detail, almost like a speed round here maybe to just get you to give a super high level on what's the increase to the lifetime capital gains exemption. What's this new Canadian entrepreneurs incentive. I know something near and dear to your heart. Assuming I understand this change as well, which is speaking of amt, some changes around charitable giving as it relates to amt, which I know you and your peers have Been very vocal about. So probably five minutes because I know you have to go and, and we got to get this out to our listeners today. Maybe those three items. Oh, and wait. Any one that you think are is critical that we should just make sure

there's a couple more. I'm going to do a lightning round style. So number one, got a small business, you got a small business that operates primarily in Canada. Before the capital gains, sorry, the capital gains exemption, meaning the amount that you could sell those shares for and get tax free was about a million. It was indexed to inflation. They've now bumped that up to 1, 250. That means the first million 250,000 of gain. There's no tax, although there could be alternative minimum tax. But there's no tax and that exemption is now indexed to inflation or it continues to be. It's just at a higher number. Number two, there's a new, there's a new exemption, a new capital gains exemption that's going to be brought in over 10 years, very, very slow. There's also a massive amount of exclusions, but it's for entrepreneurs who sell a business will be able to shelter from tax an additional $2 million of gross gains. So they would be able to pay no tax on in addition to the 1.25 plus the $2 million again. However, that's for very, very targeted industries. And I think it really all comes in in 2036. So that's years down the road. Let's talk about the increase to the homebuyer's amount. So now if you perhaps you've got a kid or yourself and you want to buy your first home, you can pull now up to $60,000 out of your RSP to use it for a down payment and you have to pay it back over a period of time. It's over a period of 15 years. But now that 15 years starts a little bit later. So you're getting a little bit of a break there. You can pull more money out and you can pay it back over a slower period of time. One other interesting point. Oh, talk about amt. So there was a huge kerfuffle with respect to alternative minimum tax and donation planning. All I'm going to say is this. The government's made it better. It hasn't gone away, but it's better

and it is what problem that happened.

The problem is the problem is that it's not in a high level. It's not as tax efficient as it used to be to give away a dollar. And it's Certainly not as it's not as tax efficient as it used to be to give away public company stock. It is still tax efficient. It's still more efficient likely than just giving away a buck to give away an appreciated stock in a non registered account, whether corporate or individual. But there's going to be, I shouldn't say there's likely or could be some level of taxation on that gift just means that your cost of giving is going up a little bit. It was going to be very, very bad the way that the government first announced it. They've made some, some tweaks which I think will, which I think will calm, calm people down. Bottom line is it's likely still most efficient to give away shares of public company stock with appreciation if you have them. And it doesn't mean that philanthropy is dead or anything like that. But hopefully the, the lever that was perhaps quashing a bit of the excitement about philanthropy is now lifted. Last thing I just want to mention is something that your, your listeners might be interested in is that something new was announced last year, but there was a little bit more detail given about it. It's the ability for an owner or owners of an operating business in Canada to sell their business and perhaps benefit from up to 8 a 10 million capital gains exemption. Meaning that the owners of a business who sell a business in a certain way to, I'll explain in a second, can benefit from a 10 million tax free gain. That $10 million would have to be shared by the owners who are selling. Could be one person, could be a group of people. The key certainly, it's certainly not going to be one of those where you and every member of your family gets 10 million for free. The key though is that you are going to sell to an employee ownership trust. The benefit is that you're effectively able to sell the business to your employees and the purchase price can be paid for by the business, by the future earnings of the business. That's important because it gives, it gives many people who have businesses in Canada a really attractive option. If you're deciding that you want to sell your business and you have the choice of, you know, you could sell to a search fund, you could sell to private equity, you could sell to a competitor, you can sell to somebody foreign, you're going to be likely in the best tax position. If you sell the business to a trust for the benefit of your employees, you might not get your money as quickly. Right? This is like, this is likely not to be a cash deal where you're going to walk away with your $10 million all in one day. Where you might get, if you're selling to a private equity or a strategic buyer or anything like that, but you're going to get a better tax break because you could save up to, I mean, I can. Talking about these numbers, if the rate is as high as as 35%, you could save up to $3.5 million of taxation. So it's trying to make it very attractive for business owners to keep those, Keep the wealth in Canada, keep the wealth in the hands of the employees, or allow for the wealth to accrue in the hands of the employees, which I actually think is a great option. And I think we're going to see it wasn't such an attractive option until the government in late 2023 announced, oh, and by the way, we're going to give you a $10 million dollar tax free exemption. Up until then it was like, well, what's the, what's the point? I'd rather get the cash, you know, bird in the hand versus, you know, two in the bush. I'd rather have the cash now and sell to private equity. So this is going to make it a much more attractive option to see if you can figure out how to sell it to your employees. So that's something, that's something we'll see too. Yep.

That, that one I like. That's very good.

No, it's, it's, it's a good one. It's a good. A topic for another podcast, another day.

Yeah. Well, listen. Okay. And so thank you so much, Ali, for taking the time. We're going to cut it there. Really appreciate your insight. You're very clear, very smart around all this stuff, which is why we love talking with you and working with you.

You're too kind.

27 of these lined up for the rest of the day nonstop. So thanks so much for your time.

With pleasure.

We, we'll see where this goes.

Have a great day, everyone.

Okay, take care

of

the unlimited podcast is hosted and produced by Brian Ginsler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media. Enslerwealth. Thanks for listening and see you next time.

Okay, folks, so I feel bad. I know I cut out the intro theme music and people really look forward to hearing it. So it's a special gift from me to you. Right after I finish speaking here, we're going to play the entirety of the Ginserwell theme song from start to finish, never before heard in its entirety from start to finish. David, let's go. Sa.

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