By David Udy
As of June 25, the proposed changes to the capital gains inclusion rates take effect, assuming they are made law later this year. Individuals and some trusts will still pay income tax on half of their capital gains up to $250,000 but will now pay income tax on two-thirds of any capital gain above that amount. Corporations will now pay income tax on two-thirds of any capital gains. These changes introduce significant complexity for business owners, particularly in areas such as succession planning, investment strategy, and tax compliance. Moreover, the misalignment of integration, which has long been a goal of the Canadian tax system, will further complicate financial planning and tax efficiency.
The Impact of Capital Gains Tax Changes
The increase in capital gains tax rates makes strategic financial planning more crucial than ever. Business owners will face several potential challenges:
- Succession Planning: The increased tax burden complicates the transfer of ownership, making it essential to strategize well in advance to minimize tax liabilities.
- Investment Strategy: With higher taxes on capital gains, optimizing investment portfolios for tax efficiency becomes more complex and critical.
- Tax Compliance: The changes will require meticulous attention to tax reporting and compliance, increasing the administrative burden on business owners.
- Cash Flow Management: Higher taxes can impact liquidity, requiring careful cash flow planning to ensure business operations are not adversely affected.
These challenges necessitate a collaborative approach to financial planning, where accountants, financial advisors, and other professionals work together to provide holistic solutions.
A Collaborative Approach
WealthCo was founded with a mission to revolutionize the financial services industry. The goal has always been to leverage the unique relationships between clients and their accountants to deliver comprehensive financial planning. This collaborative model ensures that business owners can use their businesses to achieve personal goals, spend quality time with family, and leave a lasting legacy.
From the beginning, WealthCo has consulted clients’ accountants before making recommendations. This practice has now evolved into The Integrated Advisory Network, a community of like-minded financial professionals. Today, WealthCo’s team of 30 seasoned professionals works collaboratively with over a dozen professional accounting firms in Western Canada servicing over 30,000 business owner clients.
Real-World Success Stories
One of our key partners, Avail Wealth, a division of Avail CPA, is part of the Integrated Advisory Network. Tyler Brack, a partner accountant and principal wealth planner with Avail Wealth, recalls a case where WealthCo helped a high-net-worth client transition out of a family-owned business. At that time, Canadian capital gains tax rates were 50%. Together, we created a comprehensive plan that saved the client about $3 million in taxes over their lifetime. This client relationship has since extended to the next generation.
Collaboration is the Answer
The recent changes in capital gains tax underscore the need for a well-integrated financial strategy and professional collaboration. By ensuring seamless communication between financial advisors and accountants, business owners can achieve tax-efficient outcomes and secure their financial futures. This integrated approach not only addresses immediate financial challenges but also helps build a legacy for future generations.
David Udy is Founder & CEO of WealthCo. For more information on WealthCo and the Integrated Advisory Network, visit WealthCo.ca and IntegratedAdvisory.ca.
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