The Conservatives and your money

What is a Conservative government likely to mean for investors? Some policies seem clear, if we assume that the Conservatives will stay true to their campaign platform and their election promises. In other areas, we’ll have to wait and see. Here’s a run-down of what to watch for.

Income trusts. The Conservatives have indicated that they don’t want to poke this hornet’s nest again. The platform specifically promises no taxes on income trusts and statement made since Election Day indicate that is firm policy. So the trust sector in Canada appears to have a green light to grow and prosper. This makes our country unique in this regard; the U.S., Australia, and Great Britain all limited the expansion of trusts.

Dividends. Just before the election, Ralph Goodale announced that the dividend tax credit would be increased on payments from large Canadian companies in a move to level the playing field with income trusts. The new policy came into effect on Jan. 1 and effectively reduces the tax rate on dividends for a top-bracket individual to about 20 per cent. However, enabling legislation has not been passed by Parliament and the new Conservative government could rl back the change or tinker with its application. The official party policy is to end the double taxation on dividends. However, no details have been announced on how the Tories plan to achieve this. As far as I can tell, there was no commitment by the Conservative leadership during the campaign on what the party would do about the Liberals’ dividend policy. This therefore becomes a wait-and-see issue.

Interest income. Some lobby groups have advocated a return to an earlier policy that allowed taxpayers to shelter a certain amount of interest income (the limit was $1,000 at the time the practice was abolished). There is nothing in the Conservative platform to suggest they would consider this.

Capital gains. The Conservative pledge to eliminate capital gains taxes in cases where the money is reinvested within six months could have huge implications for investors, depending on the terms under which it is implemented. For example, it may be possible to sell a cottage property, take large profit, and then reinvest the whole amount so as to generate more cash flow. But tax experts are already raising warning flags about the potential cost. We’ll be watching this one closely.

Pension income. The Conservatives say they will double the pension income amount immediately to $2,000 and raise it to $2,500 within five years. The effect of this will be to eliminate taxes on that amount for the lowest-bracket taxpayers and to reduce the rate paid by those in higher brackets. Since income from a RRIF qualifies for this credit, it may encourage more people to take advantage of the tax break. This can be done by setting up a small RRIF at age 65 that will generate about $2,000 in annual income.

There may be other moves of interest to income investors when the first Conservative budget comes down. We’ll see how it all unfolds.

This article originally appeared in The Income Investor, a monthly newsletter that provides advice on building an income portfolio and choosing the right securities. For details on how to subscribe to The Income Investor go to