Posthaste: Capital gains tax hike will hit more Canadians than we thought
Ottawa’s hike to the capital gains tax has been slammed as a blow to Canada’s productivity, but closer to home, it will also hit your stock portfolio, say analysts.
The corporate tax increase “is the latest in a long line of decisions that for various, arguably legitimate reasons has reduced the returns investors can expect from Canadian public equities,” said analysts at CIBC Capital Markets.
Their report identifies three sectors that have been “consistently at the sharp end of the political stick” — banking, energy and communications.
It’s significant that these three sectors have generated half of S&P/TSX earnings over the past 10 years and also play heavily in retirees’ investment holdings because of their higher dividend yields.
The change proposed in this year’s federal budget will increase the capital gains inclusion rate from 50 per cent to two-thirds for corporations and individuals with gains over $250,000.
The higher taxes will reduce corporations’ profitability and return on equity and follow other government initiatives that have weighed on business, said the analysts.
In the 2022 budget, Ottawa imposed a 1.5 per cent income surtax on banks and insurers. Higher capital requirements, tax changes for dividends, initiatives in the Canadian Mortgage Charter, not yet law, and the intent to cap NSF fees, all threaten to reduce banks’ profits, they said.
Communications also face regulations aimed at encouraging competition in the sector, and in energy, to limit carbon emissions.
“The high-yielding stocks in the banking, communications and energy sectors typically underpin Canadian retirement investment portfolios,” said the analysts.
“Policies that pressure ROE in these sectors can directly reduce the ability of
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