The Conservatives released their party platform today and unveiled a significant tax cut on capital gains:

[A Conservative government will] Eliminate the capital gains tax for individuals on the sale of assets when the proceeds are reinvested within six months. Canadians who invest, or inherit cottages or family heirlooms, should be able to sell those assets and plough their profits back into the economy without taking a tax hit. It is time government rewarded Canadians who reinvest their money and create jobs.

News reports indicate that the plan also applies to stocks and bonds. Since taxes are the enemy of long-term investing (why sell a stock that has good fundamentals, but is overvalued, when 25% of the capital is lost to taxes on selling), the deferral of capital gains is a very significant benefit for investors. Combined with the increase in the dividend tax credit, the Tory plan is likely to reopen the whole debate on saving inside or outside a RRSP.

(As an aside, I found it ironic that the Liberals are calling the Tory fiscal plan “a formula for fudge”, when the same people have underestimated the federal surplus for years.)

PS: I just noticed that Investing Intelligently also has a post on this issue.

This article has 7 comments

  1. Well, it will still be better to invest the maximum allowable into an RRSP for the deduction it generates… I think the Gummy Stuff website has some pretty detailed equations for the RRSP vs. non-RRSP stuff; they could be modified. But I’m getting ahead of myself, the Conservatives aren’t even elected…

    By the way, I kind of like the underestimation of the surplus. I don’t know how they underestimate it, by being “sneaky,” or by just making conservative estimates for government revenue and so forth. I mean isn’t it better to underestimate your revenue and overestimate your spending? That would be the only way to maintain a consistently balanced budget in my mind. But if they do some “sneaky” fiddling with the numbers to create these “surprises” just for attention, then that is wrong.

  2. Canadian Capitalist

    Dave: The budget for the past number of years already had a surplus built in – the so called contingency fund of $3 billion. The overestimation of the surplus was over and above that. And at the end of the year, the federal government says “oops. we collected so much more” and then goes and spends a large part of it in the next budget. Drives me nuts as the surplus is nothing more than overtaxation.

  3. Canadian Capitalist

    Toronto Star says “Tax Deferral plan cheered“.

  4. The PC’s are describing this as a deferral of taxes. However, for the wealthy, this should be a deferral of taxes until the end of time (as the word on the street is that inheritances can also be re-invested tax free).
    I’m interested in the impact on flow through funds and income trusts. I’d think to prevent having our cake and eating it too, there’d have to be significant changes in their taxation.
    Good for me? Yes. Good for the average Cdn? I don’t think so.

  5. Canadian Capitalist

    The debate on RRSP vs. non-RRSP has already started in Rob Carrick’s column in The Globe and Mail.

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