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OTTAWA — The Harper government is expected to unveil a tax break for investors in the 2008 budget tomorrow, according to Finance watchers who predict the Tories will offer something to make up for the fact they've so far not delivered on a two-year-old campaign pledge for capital gains relief.
Options they expect Ottawa has been studying include:
--Allowing investors to put capital gains, or some capital gains, tax-free into their registered retirement savings plans.
--A tax prepaid savings account that works like an RRSP – in that contributions accumulate tax free, but there is no tax credit when funds are invested.
Finance watchers predict that in Tuesday's 2008 budget the Tories will offer something to make up for the fact they've so far not delivered on a two-year-old campaign pledge for capital gains relief. (CP)
--A capital gains deferral account that gives investors a tax exemption on funds reinvested within a specified account, to a specified lifetime limit.
The Conservatives campaigned before the 2006 election on a promise to give Canadians an exemption from capital gains tax if the proceeds were reinvested within six months.
But this pledge turned out to be too expensive and unwieldy to enact. Critics estimate it would cost the federal government up to $1-billion a year or more.
Senior economists and tax experts who pay close attention to Ottawa say they believe the Conservative government can't let a third budget go by without offering something for investors, especially with a possible election looming this year.
“I expect to see some kind of tax break for investors in the 2008 budget,” Toronto-Dominion Bank chief economist Don Drummond says.
“It won't be the 2006 idea but something the Conservatives will hope will be considered sufficiently close to count as fulfilling that election promise.”
Finance Minister Jim Flaherty has been under pressure to deliver on this pledge in recent weeks and months, especially since, Bay Street sources say, Prime Minister Stephen Harper has been unhappy at the prospect of failing to fulfill the Tory campaign pledge.
“Three budgets without delivering would be a blow to an otherwise strong record of delivering on campaign promises,” a Bay Street source said.
Mr. Drummond and C.D. Howe Institute research director Finn Poschmann say the cash-strapped Tories must select a measure that doesn't cost too much in the short term.
“A government concerned about meeting short-term revenue and spending goals may well be attracted to longer-term improvements on saving and investment that don't need to cost much up front,” Mr. Poschmann said, adding he would find it odd if the Tories didn't include a break for investors.
The original 2006 Tory election platform vowed to eliminate taxes on capital gains reinvested within six months, an open-ended promise that was so poorly drafted, tax experts said, it would cost the treasury dearly.
“Canadians who invest, or inherit cottages or family heirlooms, should be able to sell those assets and plow their profits back into the economy without taking a tax hit,” the Tory platform said.
Business groups have lobbied the Conservatives in recent months with ideas on how to enact something that helps fulfill the Tory promise but doesn't beggar Ottawa.
The Canadian Real Estate Association recommended, among other things, that Ottawa spare from capital gains taxes individuals or businesses that, within one year, reinvest the proceeds from the sale of an investment property into another property.
The realtors have a study estimating this tax deferral would cost Ottawa $258-million in annual foregone revenue, an amount that would presumably drop if additional government revenue were generated by spinoff economic activities.
The Tories have warned they will not offer significant tax or spending measures in what should be a slim budget on Feb. 26, saying Ottawa has had to slash projections for how much spending room it has, due to the softening economy.
The cash-strapped Tories have nearly emptied Ottawa's coffers of spare cash since 2006, taking about $30-billion worth of annual government revenue and doling it out in tax cuts and spending, including $12-billion in reductions to the goods and services tax.
