My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, October 26, 2015

The Liberal Victory - How it May Affect TFSAs, Personal and Corporate Taxes

Last week on Twitter, one of my favourite tweets was by sportswriter Dave Hogg. He tweeted, “Two thirds of Canada is covered by the Liberal Party. The other third is covered by Kevin Pillar" (the Toronto Blue Jays center fielder). 

Unfortunately, since the Blue Jays are toast (how could they not score that man from third?), I will talk about the Liberal victory and what it may mean to income taxes. I say “may mean” because, until we see legislation, we are never sure as to what proposals or promises will be implemented and the exact wording of the actual legislation.

The Roll-back of the TFSA Contribution Limit

Liberal leader Justin Trudeau (as I understand it, Mr. Trudeau is a prime minister-designate, thus I will not call him Prime Minister in this article to be technically correct, and just stick with Mr. Trudeau for now) emphatically stated several times he would cancel the tax-free savings account (" TFSA") limit increase from $5,500 to $10,000. There is much hand-wringing and concern over what will happen to the extra $4,500 many people contributed this year.

This is probably much ado about nothing. Personally, I think the Liberals will probably just do something like this to clean up the issue:
  1. Send out a press release prior to December 31, 2015 (assuming they cannot pass legislation on time) saying that as of January 1, 2016, the maximum cumulative TFSA limit will be re-set to $42,000 ($36,500 old limit [before the 2015 increase to $41,000] plus $5,500).

  2. State that when the legislation is passed, it will be retroactive to January 1, 2016, so if anyone contributes in excess of $42,000, they will be subject to over-contribution penalties.
Assuming I guess correctly, this would clean-up the TFSA issue. Those who contributed the extra $4,500 in 2015 will only have another $1,000 to contribute in 2016 and they will be warned in advance that if they over-contribute they will be subject to a penalty. Easy peasy IMHO.

Potential Changes to Your Personal Taxes

The Liberal platform included some of the following potential changes:
  • Reduce the middle income tax bracket ($44,700 - $89,401) from 22% to 20.5%, resulting in a potential tax savings of up to $670 for those earning between $44,700 and $89,401.
  • Cancel the Family Tax Cut which provides for up to $2,000 in family income tax savings. This seems counter-intuitive based on the middle income tax cut, so there may be more to this proposal.
  • Increase taxes on people making more than $200,000 by creating a new tax bracket of 33%. My comments on this proposal were provided to Rob Carrick of The Globe and Mail in this article. As noted in Rob’s article, my concern is once you increase the highest marginal rate past 50%, you break a significant psychological barrier. I know this is a bit of an airy-fairy comment, but you would be surprised at how many people were already upset last year by their increase in personal taxes when Ontario changed the tax rates, and high-wage earners were paying 49.53% tax on income over $220k. Wait till this year when they will be paying 53.53% at the highest marginal rate.
  • Remove the Conservative plans to gradually raise the age of Old Age Security to 69.

Potential Streaming of the Small Business Corporate Tax Rate

The Liberals stated they plan to follow through with a proposed small business corporate tax rate decrease from 11% to 9%. However, they want to ensure that private corporations, known as Canadian Controlled Private Corporations ("CCPCs") are not used to reduce personal income tax obligations for high-income earners.

As noted in this National Post article, Mr. Trudeau said the following in a CBC interview, “A large percentage of small businesses are actually just ways for wealthier Canadians to save on their taxes. We want to reward the people who are actually creating jobs, and contributing in concrete ways. So there’s a little tweaking to do around that.”

In a follow up article  Mr. Trudeau said “that several studies have shown that more than half of small business owners are high-net-worth individuals who incorporate…to avoid paying as high taxes as they otherwise would”. The Post noted that “in that group are doctors and lawyers, groups that may find themselves squeezed by the policy Trudeau loosely outlined this week”.

Mr. Trudeau went on to say that “We want to focus on helping small business owners who are working hard, who are creating jobs for members of their community and serving their community. We are committed to evidence-based policies and I will make no apologies for that.”

To the best of my knowledge, there has been no discussion on how the Liberals would carve out part of the small business population from using the small business deduction. This would be an extremely complex piece of legislation.

In the Rob Carrick article, I noted that I would expect some people may start considering leaving Canada to move to a lower tax jurisdiction or consider moving their funds offshore. As discussed in one of my earlier blogs, in my personal experience, this is typically something only the ultra-rich undertake. What I have found is that once people understand the income tax consequences (deemed disposition of certain assets) that results upon emigration and when they account for family and healthcare, they typically grin and bear income tax increases. I do have some concern that higher tax rates may impact the amount higher income earners invest in their current or new businesses.

Last week a doctor told me he was starting to see other medical professionals consider leaving Canada for the United States. I told him I was surprised as I thought that exodus had been stemmed by better pay policies implemented over the last ten years or so. If that doctor is correct, it will be interesting to see if higher personal and corporate tax rates are implemented, whether mobile professionals and small business owners will in fact consider leaving Canada for lower taxing jurisdictions.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.


  1. So you are saying I am $1330 in the hole thanks to all of this? I guess I am glad I am not making $200K a year? Ah well, no big worry, but thanks for putting together these highlights for us.

    1. Hi BCM

      Based on what has been said it appears so, but again, it does not seem to make sense as the whole idea is to help the middle class. So I think we need to wait to see if the family tax cut is somehow offset.

    2. It all depends on how the Liberals want to appear. They could go all "Daulton McGinty" (sp?) and do all the "bad things" in their first year and hope we all forget, but given they have a strong mandate they have the luxury of changing their minds or rethinking things as well? Again time will tell.

    3. Yes, it will, but I just dont understand how you have a middle class platform then have the middle class pay more tax if they took advantage of the family cut, something seems amiss, but as you note, time and legislation will tell

  2. I think for the TFSA, leave the contribution limit at $10k for 2016 year. Then, as part of the next budget, roll the TFSA back to $5,500, indexed of course. That would be easier I think.

    As for the 50% tax barrier, psychological or not, that's a pile of taxation and I suspect it will force some Canadians to strongly consider alternatives (i.e., leaving the country).

    Time will tell how this shakes down!

    Hope all is well and book sales are good Mark. Sorry I missed you in Toronto this fall, hopefully next year!


    1. Hi Mark

      Yes, too bad you could not make it this year. I like my TFSA idea better :)

      The personal tax rate is definitely moving to a point where high rate taxpayers may make tax motivated decisions, never a good thing IMHO

  3. What would be the difference in our situation?
    My gross salary is 80k$ (net 65k$) and DW 30k$ (net 25k$). 2 kids, 12 and 8 years old.
    Roughly, the tax split loss meant about 750$ and the 1.5% reduction 500$ for a net loss of 250$
    For the children subsidies, I guess we wiil get between 1,500$ and 2,000$ more (for few years), not sure on that one
    The final net result +1,500$/year for our household and a growing debt for our country ;-)

    1. Hi Le Barbu

      I cannot comment on what your personal situation will be as we do not yet have legislation and I don't provide personal advice on this blog. Sorry

  4. I see a potential complication with just resetting the TFSA limit to $42,000. What happens to people who don't have the full limit (because they were under 18 or living abroad at some point since 2009)?

    For example, let's say I turned 18 in 2015. What would my contribution room be on Jan. 1, 2016? Is it $15,500, or $11,000?

    Personally, I don't see what would be gained by rolling the limit back retroactively, as opposed to just decreasing the limit going forward (and letting people keep their $10,000 contribution room from 2015). The latter seems easier to administrate, and would keep more people happy.

    1. Hi Anon

      Good point, but that could easily be adjusted by having $42k reduced based on years of available contribution. The issue with the $10k is fairness, some people did it and others not

    2. But people who haven't yet contributed up to the $10k limit wouldn't lose that contribution room. It's carried forward indefinitely. Either way would be "fair," but I think resetting the total limit to $42,000 would create more resentment than just letting everyone keep this year's extra contribution room.

    3. I agree with Anonymous that the most likely outcome will be for the $10K limit to be kept for 2015 (as a special extra contribution room) and the limit to revert back to $5.5K in 2016 for a total limit of $47,500 in 2016.

      Lets see what happens in a few weeks.

  5. I completely agree about the 50% tax rate mental barrier. Our highest marginal tax rate in Australia is presently 47%. I cannot imagine the outcry that there would be, if it were to break through the 50% barrier.

  6. Regarding Mr. Trudeau's comment on small businesses, I wonder if he will collapse his 6 numbered companies that he currently uses to shelter his trust fund and speaking fees. You know, as a show of good faith. ;-)