Many Canadian investors and businesses have shifted their thinking of how to handle their domestic equity interests in businesses and real estate. The pivot is toward viewing those investments as longer-term holdings and less as being disposable positions that may be sold to get the capital needed to seize higher-value opportunities. Investors are shifting their approach in response to the federal government’s changes to Canadian capital gains tax rules, which went into effect June 25. Individuals who generate more than $250,000 in capital gains in a tax year must now pay tax on 66 percent of each dollar above that threshold. Previously, the federal capital gains tax applied to only 50 percent of those dollars—as it applies to 50 percent of the first $250,000 in capital gains.
Thane Stenner, senior portfolio manager and senior wealth advisor at CG Wealth Management Canada and USA, told BIV that many of his ultra-high-net-worth clients have newly become more reluctant to sell their equity positions. In many cases, Stenner said he helped his clients dispose of half of their positions in various investments before June 25. “We did a ton of pre-deadline analysis and crystallized, typically, half positions before, and deferred the other half to a longer investment time frame,” he said. He said selling only half of the investments before the June 25 deadline was a “hybrid approach” that he took because many of his clients liked their holdings. The new capital gains rules, he explained, mean that in many cases investors need to grow their profit by between 10 percent and 20 percent just to make up for the increase in taxes.
Harbourfront Wealth Management senior advisor Tom Gilman told BIV that many of his clients contacted him in advance of the changes to discuss how to move forward.
