It's official! The federal political landscape in Canada has changed from a Conservative-led government to a Liberal one.
There are proposed changes on the horizon that could impact your portfolio, retirement plans and personal income taxes. Let's start by talking about your investment portfolio. For those of you with a tax-free savings account, you may recall that earlier this year the government increased the annual TFSA limit from $5,500 to $10,000 starting in 2015. If you regularly contribute and maximize your TFSA every year, this has been a great opportunity to grow your savings tax free.
Remember, a TFSA will save you tax, so who can refuse that? Well maybe the taxman! The newly elected government campaigned on a platform to reverse the $10,000 annual limit back to $5,500 as early as next year, which is unfortunate for investors. Let's talk about retirement. In the 2012 budget, the federal government announced it was making changes to Old Age Security (OAS), and not the kind of change you like to hear when you're planning for retirement. As it stands now, the government plan is to increase the age of eligibility from 65 to 67 over six years, starting in April 2023. For some, this could mean retirement is delayed by an extra two years. However, before you start marching to parliament in protest, note that the Liberal government was not supportive of these changes, so expect the age of eligibility to come back to 65.
When you think about retirement income aside from OAS, the Canada Pension Plan (CPP) usually comes to mind. The incoming Liberal government has mentioned bolstering CPP in conjunction with the provinces. So we will wait and see if this promise becomes reality. In the meantime, I would recommend you continue contributing to your RRSP or pension plan as you save for retirement. Moving on to everyone's least favourite topic. .. income taxes. I have good news and bad news. Let's start with the good news first. The Liberals have said they would lower the federal tax rate from 22 per cent to 20.5 per cent for the $44,701 to $89,401 personal income tax bracket.
OK, now the bad news. The Liberals also said they would create a new federal personal income tax bracket of 33 per cent for taxable income above $200,000. However, if this new higher tax bracket becomes reality, it will likely affect a very small percentage of Canadians and would benefit those in the most common income range. The Family Tax Cut, which became effective in 2014 and subsequent years is likely getting axed. Ouch! This allows families with children under the age of 18 to transfer up to $50,000 of taxable income to the lower income earning spouse. This is a non-refundable benefit that capped tax savings at $2,000 a year. To briefly summarize, it benefits families with one spouse earning significantly more than the other. The Liberals said they would cancel the program if elected.
Now my favourite topic - markets. As an investor, you might be wondering if markets are going to be affected with a change in government in Canada. The answer is no, not really. However, a few sectors in Canada could benefit from the Liberal leadership.
The Liberals have proposed to double the current federal infrastructure investment to almost $125 billion over the next 10 years, so this should benefit the industrial and financial sectors of the economy. But despite a change in government at home, if we look at markets on a macro level, we believe the health care, technology and consumer discretionary sectors will outperform other sectors as the U.S. economy continues to grow.
Lori Pinkowski is a Senior Portfolio Manager and Senior Vice President, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Past performance is not necessarily indicative of future performance. Lori can answer any questions at 604-915-LORI or [email protected]. You can also listen to her every Monday morning on CKNW at 8:40 a.m.
