Over the past two years or so, Canada's federal government has toyed with the idea of introducing a wealth tax. The goal of this wealth tax would be to reduce income inequality throughout the country and pay for several initiatives that the government would like to tackle.
But what would a Canadian wealth tax mean for you? Let's look at how a wealth tax might impact your financial planning.
How Would a Wealth Tax Work?
A wealth tax is based on the market value of a taxpayer's assets, including cash, bank deposits, shares, fixed assets, pensions, and more. A wealth tax differs from an income tax because it isn't just based on how much you earn in a fiscal year. Some developed countries, including France, Norway, Spain, and Switzerland, have implemented wealth taxes. This wealth tax would likely be added to your other taxes, including your income tax.1
Now, let's look at how a wealth tax might impact Canadian taxpayers.
How Would a Wealth Tax Impact You?
What a Canadian wealth tax would mean for you depends on your unique financial situation, including your net worth and assets. In many discussions about a proposed wealth tax, most economists and politicians propose a 1% wealth tax on family net worth over C$20 million. That means a wealth tax would apply to about 25,000 wealthy families in the country.
Comprehensive Tax Planning
A wealth tax would be just one part of a broader overall tax strategy. As a Canadian taxpayer, you likely pay:
- Sales tax
- Excise tax on certain products
- Capital gains tax if you have investments
- Property taxes
- Estate taxes
- Income tax
If Canada implements a wealth tax, it will play into your overall financial picture. A financial planner or CPA may work with you to incorporate your tax liability into your short- and long-term financial goals.
No one knows whether the government will implement a wealth tax, but it has been coming up in more discussions lately. In fact, many Canadian taxpayers might favor a wealth tax. According to a November 2020 Abacus poll, 79% of Canadians favored a 1% wealth tax on Canadians with more than C$20 million in assets.2
A lot of details would need to be worked out before Canada rolled out a wealth tax, but it's something to consider as you approach your tax and financial planning.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.