Capital Gains
In the recently released federal budget, the government proposed to increase capital gains taxes in some cases:
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For individuals, if your capital gains exceed $250,000, the inclusion rate increases from 50% to 67%
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For example, if an individual had $350,000 of capital gains in one year, the tax on the first $250,000 is unchanged. The tax payable on the remaining $100,000 would increase from approximately $25,000 to $33,000
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For corporations and trusts, the inclusion rate increases to 67% on all capital gains beginning June 25, 2024.
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With the proposed changes, there are several new planning considerations:
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For corporations and trusts, prior to June 25, we will review the possibility of realizing capital gains that would otherwise be realized in the second half of 2024.
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For future portfolio construction, we will focus on attempting to generate capital gains in the ‘home of best fit’ where possible. For instance, capital gains in a TFSA are preferable to capital gains in a corporation
For a summary of the key budget changes, see the attached link:
https://www.rbcwealthmanagement.com/en-ca/insights/federal-budget-2024
Interest Rates
In the first quarter of 2024, there were several indicators that highlighted the resilience of the economy. Employment numbers remained impressive and Gross Domestic Product (GDP) reports continued to beat expectations – both helped the markets recently reach all-time highs. Economic strength has delayed expectations of when central bankers will start reducing interest rates. Currently, markets are expecting one to two interest rate decreases (each decrease is typically ¼ of 1%) this year, with the first not occurring until sometime this summer or fall. With Canada beginning to show more signs of economic weakness relative to the US, the Bank of Canada may act to reduce interest rates earlier than the US Federal Reserve.
Portfolio Comments
Recently, we have implemented a few changes within portfolios, including adding Manulife stock – and for those clients with fixed-income investments, increasing the duration of the bond holdings. Also, in late March, with markets near all-time highs, we reduced several positions to raise some cash. Lastly, we have been undertaking due diligence and expect to be adding a new strategy, the Starboard Value Fund, in the coming months.
Pearlstein Wealth Update
We are very excited to be welcoming back Carmen, who will be returning from her maternity leave, at the end of April!
Wishing everybody a happy and healthy spring!
Pearlstein Wealth
