“There’s been some uncertainty around what happens if this doesn’t pass before the next election. That’s different. That’s not something we typically have to deal with when we’re talking about year-end planning.”
While that political uncertainty is out there, Courcelles believes that advisors should look past the question of whether it will pass, to the question of whether it applies to their clients. Because the 66 per cent inclusion rate only applies in gains over $250,000, Courcelles argues that it will not apply to the vast majority of clients. Advisors may need to begin by triaging their clients somewhat, explaining to some clients why this rule won’t apply to them, while working on strategies to help manage the tax burden for the clients this rule will apply to. Proactive communication in this case is key.
Those clients who this should apply to include potentially some clients liquidating assets for a home purchase, or clients selling properties at significant gains. Private corporations, too, are not eligible for the $250,000 exemption so their 66 per cent inclusion would begin from the first dollar of gains. Those individuals with private corporations, like many physicians, dentists, and business owners, tend to be well served by other professionals including tax accountants. Nevertheless, this is a key consideration for advisors with incorporated clients.
In some ways, the quick route advisors can take to manage a possibly onerous tax bill is the tax loss selling of securities. The trouble with 2024, at least so far, is that losses are a bit hard to come by. With equity markets up by double-digit percentages, there are few assets where a sale can cause a meaningful tax break. Even rebalancing done in non-registered accounts this year could trigger significant capital gains exposure. Courcelles says that advisors may be wanting to talk with clients about the charitable gifting of securities. Anything with a significant unrealized gain could be gifted as a marketable security to a charity, resulting in a significant tax write-off while also offloading a possible source of capital gains tax. If a client wants to donate securities, though, proactivity is key. Not all charities are set up to receive securities, and those that are will take time to process the gift. These gifts therefore need to be made sooner, rather than later.
While these tax considerations are all essential areas for advisors to discuss with their clients, Courcelles emphasizes that the tax decisions should serve the client’s financial plan and not the other way around. Letting the tax tail wag the dog, as it were, may result in worse decisions from a holistic standpoint. He argues that other strategies like tax deferral could also help clients manage this year’s tax uncertainty without necessarily upending their overall plan. In all things, especially in this year of uncertainty, being able to communicate proactively and calmly is key.
