Critical Role for Advisors Requires Knowledge on Capital Gains Changes

The capital gains inclusion rate changes have invoke wide-spread concern about the best ways to preserve assets built over a lifetime to fund retirements and pass down important real estate and business interests. These tax changes will indeed cost average households significantly more money when they dispose of the assets that form the cornerstones of their net worth.  Advisors have an important role to play in ensuring that the June 25 trigger date for the higher inclusion rates will not unduly upset retirement and estate plans.  Here are five things that can be done:

• Review Options. Specifically, before and after the June 25, 2024 date, Canadians will require more proactive investment, retirement and estate planning help, to shore up lost values in portfolios due to the prepayment of taxes, loss of social benefits due to clawbacks and explore the tax mitigation options for the uncontrollable and now increasingly expensive deemed disposition at death.
• Manage instalments.  Individual taxpayers will need to be prepared for cash flow shortages in 2025 as well, as their quarterly instalment remittance profiles change. Be prepared to calculate estimated income for those purposes instead of using the automatic billing method CRA will report on.
• Update the Personal and Family Net Worth Statements as soon as possible to get a good handle on the level of accrued gains in assets held.
• Do “what if” scenarios, calculating the taxes and discussing alternative courses of action to offset tax increases with relieving provisions or timing alternatives.  Examples are the use of capital gains reserves for vendor-financed deals, the acquisition of replacement properties  and  the use of strategic use of donations to mitigate taxes.
• For both individuals and business owner clients, review insurance coverage and estate planning requirements – wills and directions that will be required if there is an unexpected deemed disposition due to death. 

Bottom Line:  There is an opportunity for tax and financial advisors to add value by being proactive in engaging their clients in all of the activities above.

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