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What is on the horizon for advisors and investors?

POTENTIAL POLICY PRIORITIES OF THE NEW LIBERAL GOVERNMENT

On October 19, 2015, the Liberal Party of Canada won 184 seats – enough to form a majority government. The Prime Minister-designate will name a cabinet on November 4, 2015, and is expected to introduce a budget in the House of Commons in the New Year.

So what can advisors and investors expect to see from a Liberal government?

The exact details of Prime Minister Trudeau’s agenda will be unveiled in the budget; however, looking at the Liberal Party’s election platform and campaign announcements gives good direction on the government’s potential policy priorities.

Tax changes

Tax cut for the middle class, tax increase for the wealthy
The hallmark of the Liberal platform is a promise to cut the middle-class tax rate. According to the platform, anyone making between $44,701 and $89,401 would see their federal tax rate decrease from 22% to 20.5%.

To support this tax cut, the Liberal platform calls for the introduction of a new tax bracket for those earning more than $200,000 a year. The new tax rate for this group of earners will increase from 29% to 33%. The marginal tax rate for top earners in many provinces will be above 50%. As a result, tax planning will become increasingly important for this segment of the population.

These tax changes will most likely be passed before the budget. Expect this legislation to be introduced before the Christmas break.

Scrapping family income splitting
Throughout the campaign, the Liberal party indicated that they would repeal family income splitting. This policy measure, introduced last year, allowed families with dependents under 18 to split a portion of their income for tax purposes.

FIDELITY COMMENTARY

Rolling back the TFSA maximum contribution amount
A key piece of the Liberal platform was a promise to roll back the Tax-Free Savings Account (TFSA) maximum contribution amount from $10,000 to $5,500. It is yet to be determined if the rollback will be applied to 2015 contributions; however, given the complexity involved in retroactively applying a cap, it is more than likely that the rollback will take effect for 2016 contributions.

Cap on stock option deduction
The Liberal platform proposes a cap on how much can be claimed through the stock option deduction. Employees with up to $100,000 in annual stock options would not be affected by this new cap.

Pension changes

Increasing the CPP
The new Liberal government has promised to meet with the provinces within the first three months to discuss enhancements to the Canada Pension Plan (CPP). The amount of any increase was not specified.

Increasing the CPP could eliminate the ORPP
Any enhancements to the CPP could result in the Ontario government putting the brakes on the Ontario Retirement Pension Plan (ORPP), Ontario’s proposed provincial pension plan. The Premier of Ontario has repeatedly stated that any enhancements to CPP would result in the elimination of the ORPP.

Set OAS eligibility age back to 65
The Liberals promised to revert the Old Age Security (OAS) benefits eligibility age back to 65 from 67. The Conservative Government raised the eligibility age to 67.

Maintaining pension income splitting
There was much media coverage on this policy issue throughout the campaign: the Liberals ran ads stating that they would maintain pension income splitting for seniors.

Deficits and debts

Running a deficit for the next three years
The Liberal Party promised to run modest deficits for three consecutive years in order to fund large-scale infrastructure projects. The government plans on running a budget deficit of about $10 billion annually over the next three years to help fund a $60 billion infrastructure plan. This infrastructure plan will invest in roads, bridges and public transit

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