Dale Jackson

Personal Finance Columnist, Payback Time

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If you’re investing for retirement, next week’s federal budget could be a big deal.

Of all the unforeseen risks that could derail the best laid plans, government is often overlooked. With the stroke of a pen, a future income stream could be throttled with a new or expanded tax.

There has been a lot of talk about new ways the Liberal government could choose to generate revenue. It could be speculation, or it could be a trial balloon from the government itself to see how a new measure might go down.

Here are a few things to keep an eye on:

• An increase to the amount of capital gains that are subject to taxation. Right now, 50 per cent of capital gains generated from stocks or equity funds outside a registered account are taxed. That could go up to 66 per cent or 75 per cent.
• Dropping or lowering the dividend tax credit. Eligible dividends (generally from Canadian companies) can generate a tax credit to be applied against income. The amount varies from province to province and depends on an individual’s income bracket.
• Possible changes in the favourable treatment of stock options. The Liberals campaigned on capping the stock option deduction at $100,000 but critics argue it will eliminate a valuable incentive for startup companies to attract or reward talent.

All of the above tax situations do not apply to registered accounts such as the registered retirement savings plan (RRSP) or the tax free savings account (TFSA). All income withdrawn from an RRSP is fully taxed regardless, and gains in a TFSA are never taxed.

However, there is an important potential landmine for Canadians who run a business out of their homes. Normally, gains on the sale of a principal residence are not taxed (like a TFSA). That could change for people who claim deductions for revenue generated from a home business.

That would impact millions of Canadians.