I INTRODUCTION
i The current Canadian wealth situation
On its 150th birthday on 1 July 2017, Canada was hailed as a country that has lived up to its official motto of 'peace, order and good government'. It is looked to increasingly as an oasis of calm and financial and political stability in a world that, in particular, in the last year, has been on a rollercoaster ride of unprecedented change rocked by a number of unexpected political events – the outcome of the US 2016 presidential elections and the election of Donald Trump, Brexit, and heightened tensions and serious conflict in the hotspots of the world.
But Canadians cannot be complacent. Lurking beneath the surface is a variety of undercurrents that spell potential turbulence and trouble ahead. One is the red-hot housing market, particularly in certain urban centres such as Vancouver and Toronto, and now the prospect of a potential housing correction, which, depending on its severity, could create a tidal wave of dislocation throughout the Canadian economy.
Canada has at the same time drawn the world's attention by its move in July 2017 for the first time in seven years since the 2008 economic crisis to finally increase interest rates. The concern is that the harmful effects of an artificially induced low-interest rate environment now outweigh its benefits, and the time has come to move forward on the path to normalcy. But how increased rates will impact other aspects of the Canadian economy remain to be seen. Raising rates will increase the Canadian dollar and put a damper on exports. And that dampening effect, if not sufficiently gradual, could be the instigator of a sharp housing correction.
The government is also now more than just stretched – it is virtually tapped-out in terms of debt level, a topic that should be at the core of public debate, but that is not. And with that reality arises the prospect, and virtual certainty, of only increasing levels of taxation, but at the same time Canadians are also tapped-out and have unprecedented levels of personal debt.
The 2017 Canadian Federal Budget announced that the government intends to target private corporations and their shareholders, often high net worth individuals and professionals, who use tax planning to split income among family members or defer tax using private corporations. A package of tax proposals was released on 18 July 2017 for consultation, which contain the most significant changes to tax policy in over 40 years and have rocked the tax planning community as well as spelling significant problems for entrepreneurs and business owners. What the final proposals will be remains to be seen, but what is clear is the government is desperate and has no choice but to try to squeeze even more tax from those who have more ability to pay. The problem it faces is that at combined highest income tax rates of more than 50 per cent, a tipping point has been reached. While south of the border, the Trump tax proposals are to reduce personal tax rates to a maximum of 35 per cent, which would result in a huge gap of almost 20 per cent compared with Canadian rates should the Trump proposals be enacted, which Canadian politicians must keep in their sights.
In the last year, the Canadian banks and investment community has been embroiled in a lot of soul-searching and debate on their retail practices and on the key issues of who is an adviser and who is not, and whether the fiduciary rule should apply to prevent conflicted advice and ensure transparency of fees in providing financial and estate planning advice, following the lead of other jurisdictions that have adopted the rule, including the UK, Australia and proposals in the US to adopt the rule slated for enactment, and now delayed by the Trump administration.
No doubt the financial and estate planning industry is on the verge of modernisation and change to meet the needs of an ageing demographic, who in particular when it comes to financial and estate planning, need the ability to rely on professional, objective advice and transparency of compensation, fees and commissions.
Which is all to say as indicated at the outset, beneath the surface of Canadian calm lie several disruptive undercurrents taking hold that have the potential to achieve progressive change and carry us forward. What the outcome will be of what seems to be an inflection point on a variety of key issues that impact the Canadian private client and wealth management world remains to be seen. Let's hope the hands at the tiller are steady ones as government and the private sector navigate some tricky waters ahead.
ii Key factors in respect of private clients
Canada's constitutional system is a federal one, with a clear division of powers between different levels of government. Its primary legal heritage for all provinces and territories, with the exception of Quebec, is based on English common law; Quebec's is based on civil law. From the private client perspective, Canada offers the stability of a highly developed legal and court system and charter-based human rights protections. Property law, including succession, is a matter of provincial jurisdiction. Many modern and innovative concepts affecting private clients have been pioneered or progressed ahead of other jurisdictions in Canadian law, including equalisation of property between spouses on marital breakdown and death in several Canadian provinces recognising marriage as an equal economic partnership, recognition of common law spouses' and same-sex spouses' property and support rights, and same-sex marriage. Many Canadian jurisdictions have modern laws governing incapacity and substitute decision-making to take into account the need for a modern infrastructure to deal with an increasingly ageing population. Canada's multiculturalism and relatively 'open-door' immigration policy, which is required to maintain positive population growth and expand the Canadian economy and is increasingly geared to attracting more entrepreneurs and skilled workers, have together created and contributed to a dynamic, sophisticated, diverse and innovative Canadian culture.
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Reproduced with permission from Law Business Research Ltd, This article was first published in October 2017
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
