CIBC is warning against a possible capital gains tax rate hike in the next federal budget.
In a report to investors on Monday, CIBC World Markets Managing Director Ian de Verteuil warned of the potential consequence, noting the change would be harmful not only to individual investors – leading to “some of the highest tax rates on capital gains of OECD nations” - but also to Canadian businesses.
“It is worth saying that high taxation on investment returns, be that on dividends or capital gains, increases the cost of capital for Canadian businesses,” wrote de Verteuil, who is also head of portfolio strategy, quantitative and technical research at CIBC World Markets. “In an environment where our neighbour to the south is likely to be lowering tax rates (and is deregulating extensively), we believe that such a move is inappropriate.”
The risk of a hike to the capital gains tax inclusion rate has come to the forefront as analysts and investors speculate about the contents of the next federal budget.
De Verteuil believes a hike would prove another shot at individual investors from the current government.
“The good news is that a material amount of equity investments for Canadians is held in tax-deferred accounts such as RRSPs and pension plans,” de Verteuil wrote. “The bad news is that if done, this would be the third move by the current government that is adverse to most individual investors in Canada – the first was the bump in tax rates for high income earners, and the second was the reduction in TFSA limits in 2016.”
As part of last March’s budget, the Liberal government did away with income-splitting measures for families with children under the age of 18 introduced by the Harper government. Tax-free savings account contribution limits have also been held at $5,500 for 2017, one year after being halved.