I’m from the Government and I’m Here to Help! (Your Retirement)
I’ve just finished a Fideltiy Investments Tax Clinic, and it was filled with some great ideas about how to help people manage their investments with tax implications in mind. But what really jumped out at me is how retirees are being penalized under the current tax system.
The 2013 budget closed a number of investment loopholes that they felt were being abused by large corporations. One of these was a structure called a Capital Yield Class (aka character conversion transactions), which when reduced down to its basics allowed investors to benefit from conservative yield generating investments, like bonds and dividend funds, while converting their income into more tax friendly capital gains.
Closing that loophole may help preserve Canada’s tax base, but it raises questions for retirees. As people start retiring there will likely be a growing demand for conservative investments that are mindful of taxes. Between pensions, RRIF payments and the CPP its not improbable that retirees with sufficient income may find themselves paying a HIGHER rate of income tax than people with a comparable salary!
This is where the government can be incredibly useful. There is clearly a need for smart taxable strategies that benefit retirees beyond RRIFs and the CPP, but shares the same clarity as those products. Any solution that the government supplies would be unlikely to make everyone happy, but it would provide certainty to retirees and those approaching retirement that they are choosing the soundest investment solutions.
The Conservative Party has shown a lot of responsibility when it comes to taxes, as well as a strong populist streak not always in keeping with “business minded” political parties. This has meant ending Income Trusts and Capital Yield funds while introducing the TFSA and a potentially divisive income splitting proposal. But as the Canadian population continues to age smart political parties will likely continue to focus on the needs of that growing demographic.