June 17, 2020

Some of the sleazier types in this business don’t even try to look honest:

An Ontario judge has ordered a receiver to oversee Toronto’s StableView Asset Management Inc. after a regulatory probe found investors’ money had been overconcentrated in a penny stock that paid cash consulting fees of more than $100,000 to the wealth manager.

StableView, which was founded and is solely owned by Colin Fisher, manages about $30-million on behalf of 135 clients and states on its website that its “primary concern is capital preservation.” A review by the Ontario Securities Commission found that StableView poured money into a Clarocity Corp., a thinly traded real estate valuation technology company, putting StableView in breach of diversification and liquidity requirements for its funds, court records allege.

The OSC alleges that, from late 2017 to late 2018, one of the company’s funds, StableView Yield and Growth Fund, increased the concentration of its investment in Clarocity from 45 per cent of the fund’s assets to 83 per cent. Over the same period, Clarocity went from 43 per cent of the holdings in StableView’s Progressive Growth Fund to 72 per cent, court records show.

The OSC also found that StableView received fees from Clarocity in the form of cash, common shares and debentures as part of a consulting agreement. StableView received cash payments totalling $105,000 from Clarocity, which Mr. Fisher withdrew from StableView “for his own personal use,” Sherry Brown, an OSC senior forensic accountant, said in an affidavit. The OSC has alleged the fees created a conflict of interest that was not sufficiently disclosed to StableView investors.

In its application for the receivership, the OSC also raised doubts about how StableView valued its stake in Clarocity, much of which was in debentures. In 2018, StableView recorded the debentures at cost, despite disclosures from Clarocity that its financial position was “substantially deteriorating” – something Mr. Fisher was aware of, the OSC alleges.

But on the other hand, I don’t understand how the big guys run their businesses:

The survey of 300 global asset management firms, which was carried out by WBR Insights in the first quarter of 2020, found that controlling costs was the top priority for 87% of respondents over the next two years.

To that end, the survey also found that firms are looking to outsourcing and technology to help meet their goals.

For instance, Norther Trust reported that 85% of respondents have outsourced their trading desk or are considering doing so.

I don’t get it, I don’t get it at all. Trading is an absolutely integral part of portfolio management; even separating the function within the firm is a crazy thing to do. I have contempt for firms that use particular brokers in order to use their algorithms – what’s the matter, are margins on investment management so skinny you can’t afford to develop your own algorithms? Outsourcing the desk completely is totally crazy.

Fortunately, however, a firm doesn’t need too many “1%” clients to stay afloat:

The concentration of wealth among Canada’s richest 1 per cent is deeper than previously believed, according to a federal government report based on a new modelling approach.

The top one per cent of Canada’s families hold about 25.6 per cent of the wealth – roughly $3-trillion – up from 13.7 per cent estimated under previous methodology, says the report from the Office of the Parliamentary Budget Officer.

The amount of money held by Canadian families would total $11.7-trillion if they liquidated all assets and paid off all liabilities, about five times larger than Canada’s annual gross domestic product, the report notes.

Real estate at $5.8-trillion and mortgages at $1.5-trillion are the single largest asset and liabilities categories.

The report adds that the top 0.5 per cent of Canadian families hold 20.5 per cent or $2.4-trillion of the wealth, up from the previous estimate of 9.2 per cent.

I’ve often wondered just how stable the constitution of the “1%” (by income) is. Sure, it seems clear that the 0.5% who hold 20.5% of all Canadian wealth are always going to be part of the 1%, at least in terms of income alone before any horrifying capital losses that might get realized every now and then. But it also seems clear that since the threshold of 1% status (by employment income) was “merely” $225,409 in 2015, it seems to me that there will be plenty of people who bounce in and out of the group on a regular basis, depending on the size of their bonuses.

But yeah, these figures suggest to me that I’m on the right track when suggesting that favourable tax treatment for dividend and interest income be capped; for one thing, valuing real-estate for wealth-tax purposes is too hard; for another, somebody with $6.1-million in the kitty (according to Table 4-2 of the PBO report used as a source by the article) doesn’t really need to be incentivized to save for retirement.

PerpetualDiscounts now yield 5.74%, equivalent to 7.46% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.09%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened significantly to 435bp from the 415bp reported June 10.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 2.7200 % 1,467.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 2.7200 % 2,691.8
Floater 5.34 % 5.61 % 46,434 14.51 4 2.7200 % 1,551.3
OpRet 0.00 % 0.00 % 0 0.00 0 0.0517 % 3,439.5
SplitShare 4.88 % 5.05 % 64,129 3.85 7 0.0517 % 4,107.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0517 % 3,204.8
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2141 % 3,027.4
Perpetual-Discount 5.57 % 5.74 % 79,005 14.25 35 0.2141 % 3,247.2
FixedReset Disc 6.23 % 5.12 % 160,233 14.85 83 0.0282 % 1,833.3
Deemed-Retractible 5.32 % 5.46 % 85,996 14.42 27 -0.0418 % 3,218.3
FloatingReset 4.86 % 4.95 % 48,819 15.61 3 -0.0755 % 1,790.8
FixedReset Prem 0.00 % 0.00 % 0 0.00 0 0.0282 % 2,535.4
FixedReset Bank Non 1.97 % 3.26 % 127,066 1.58 2 0.0612 % 2,794.7
FixedReset Ins Non 6.41 % 5.12 % 124,968 15.02 22 -0.3480 % 1,868.3
Performance Highlights
Issue Index Change Notes
BAM.PF.G FixedReset Disc -8.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 13.20
Evaluated at bid price : 13.20
Bid-YTW : 6.12 %
TRP.PR.C FixedReset Disc -5.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 8.40
Evaluated at bid price : 8.40
Bid-YTW : 5.82 %
MFC.PR.R FixedReset Ins Non -4.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 20.55
Evaluated at bid price : 20.55
Bid-YTW : 5.22 %
HSE.PR.E FixedReset Disc -3.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 11.80
Evaluated at bid price : 11.80
Bid-YTW : 8.92 %
HSE.PR.G FixedReset Disc -3.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 11.00
Evaluated at bid price : 11.00
Bid-YTW : 8.91 %
BAM.PR.R FixedReset Disc -3.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 11.85
Evaluated at bid price : 11.85
Bid-YTW : 5.70 %
TRP.PR.B FixedReset Disc -3.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 7.55
Evaluated at bid price : 7.55
Bid-YTW : 5.49 %
BAM.PF.B FixedReset Disc -2.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 14.33
Evaluated at bid price : 14.33
Bid-YTW : 5.86 %
SLF.PR.G FixedReset Ins Non -2.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.18
Evaluated at bid price : 9.18
Bid-YTW : 4.87 %
HSE.PR.C FixedReset Disc -2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 11.00
Evaluated at bid price : 11.00
Bid-YTW : 8.98 %
BAM.PR.Z FixedReset Disc -2.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 15.55
Evaluated at bid price : 15.55
Bid-YTW : 5.74 %
SLF.PR.I FixedReset Ins Non -2.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 15.70
Evaluated at bid price : 15.70
Bid-YTW : 5.06 %
MFC.PR.J FixedReset Ins Non -2.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 15.71
Evaluated at bid price : 15.71
Bid-YTW : 5.21 %
PWF.PR.T FixedReset Disc -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 5.37 %
IAF.PR.B Deemed-Retractible -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 5.46 %
TRP.PR.A FixedReset Disc -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 11.50
Evaluated at bid price : 11.50
Bid-YTW : 5.72 %
CM.PR.P FixedReset Disc -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 14.45
Evaluated at bid price : 14.45
Bid-YTW : 5.22 %
EIT.PR.B SplitShare -1.41 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2025-03-14
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.32 %
GWO.PR.N FixedReset Ins Non -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.32
Evaluated at bid price : 9.32
Bid-YTW : 4.54 %
SLF.PR.H FixedReset Ins Non -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 12.71
Evaluated at bid price : 12.71
Bid-YTW : 5.05 %
MFC.PR.F FixedReset Ins Non -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.31
Evaluated at bid price : 9.31
Bid-YTW : 4.86 %
BAM.PF.A FixedReset Disc -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 16.08
Evaluated at bid price : 16.08
Bid-YTW : 5.64 %
RY.PR.S FixedReset Disc -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 17.22
Evaluated at bid price : 17.22
Bid-YTW : 4.63 %
TRP.PR.E FixedReset Disc -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 12.86
Evaluated at bid price : 12.86
Bid-YTW : 5.93 %
TRP.PR.D FixedReset Disc 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 13.05
Evaluated at bid price : 13.05
Bid-YTW : 5.89 %
BMO.PR.B FixedReset Disc 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 22.62
Evaluated at bid price : 23.00
Bid-YTW : 4.88 %
IFC.PR.I Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 23.48
Evaluated at bid price : 23.80
Bid-YTW : 5.68 %
BAM.PR.T FixedReset Disc 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 12.36
Evaluated at bid price : 12.36
Bid-YTW : 5.63 %
BAM.PR.B Floater 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 7.65
Evaluated at bid price : 7.65
Bid-YTW : 5.61 %
BNS.PR.H FixedReset Disc 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 23.20
Evaluated at bid price : 23.61
Bid-YTW : 4.90 %
BIP.PR.F FixedReset Disc 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 6.38 %
EIT.PR.A SplitShare 1.93 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 24.82
Bid-YTW : 5.05 %
BAM.PR.X FixedReset Disc 1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.99
Evaluated at bid price : 9.99
Bid-YTW : 5.62 %
MFC.PR.H FixedReset Ins Non 2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 5.14 %
BAM.PR.C Floater 2.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 7.63
Evaluated at bid price : 7.63
Bid-YTW : 5.63 %
RY.PR.H FixedReset Disc 2.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 4.69 %
TD.PF.D FixedReset Disc 2.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 4.90 %
BAM.PF.F FixedReset Disc 2.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 15.24
Evaluated at bid price : 15.24
Bid-YTW : 5.65 %
IAF.PR.G FixedReset Ins Non 3.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 16.01
Evaluated at bid price : 16.01
Bid-YTW : 5.15 %
TD.PF.H FixedReset Disc 3.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 23.14
Evaluated at bid price : 23.60
Bid-YTW : 4.83 %
BAM.PR.K Floater 3.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 7.62
Evaluated at bid price : 7.62
Bid-YTW : 5.64 %
PWF.PR.A Floater 3.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.20
Evaluated at bid price : 9.20
Bid-YTW : 4.71 %
PWF.PR.P FixedReset Disc 3.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.90
Evaluated at bid price : 9.90
Bid-YTW : 5.09 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.S FixedReset Disc 157,151 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 15.48
Evaluated at bid price : 15.48
Bid-YTW : 5.08 %
BMO.PR.Z Perpetual-Discount 104,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 23.92
Evaluated at bid price : 24.20
Bid-YTW : 5.20 %
MFC.PR.B Deemed-Retractible 87,417 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 21.98
Evaluated at bid price : 22.21
Bid-YTW : 5.25 %
SLF.PR.A Deemed-Retractible 73,070 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 22.34
Evaluated at bid price : 22.61
Bid-YTW : 5.26 %
TD.PF.L FixedReset Disc 58,116 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 20.84
Evaluated at bid price : 20.84
Bid-YTW : 4.84 %
CU.PR.I FixedReset Disc 50,812 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 23.65
Evaluated at bid price : 24.40
Bid-YTW : 4.60 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.G FixedReset Disc Quote: 13.20 – 14.69
Spot Rate : 1.4900
Average : 0.9069

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 13.20
Evaluated at bid price : 13.20
Bid-YTW : 6.12 %

MFC.PR.R FixedReset Ins Non Quote: 20.55 – 21.60
Spot Rate : 1.0500
Average : 0.7421

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 20.55
Evaluated at bid price : 20.55
Bid-YTW : 5.22 %

BIP.PR.F FixedReset Disc Quote: 20.10 – 21.00
Spot Rate : 0.9000
Average : 0.6588

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 6.38 %

GWO.PR.N FixedReset Ins Non Quote: 9.32 – 10.00
Spot Rate : 0.6800
Average : 0.4832

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 9.32
Evaluated at bid price : 9.32
Bid-YTW : 4.54 %

PWF.PR.T FixedReset Disc Quote: 14.55 – 15.25
Spot Rate : 0.7000
Average : 0.5053

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 5.37 %

BAM.PF.J FixedReset Disc Quote: 23.50 – 23.95
Spot Rate : 0.4500
Average : 0.2813

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-06-17
Maturity Price : 22.79
Evaluated at bid price : 23.50
Bid-YTW : 5.03 %

17 Responses to “June 17, 2020”

  1. LD says:

    “But yeah, these figures suggest to me that I’m on the right track when suggesting that favorable tax treatment for dividend and interest income be capped”

    James – Am I missing something? My understanding is that interest is taxed like income and dividends are taxed so that when combined with the corporate tax rate, they too are taxed like income. The dividend tax credit serves to avoid double taxation of corporate profits. Will you please explain what you mean by the “favorable tax treatment for dividends and interest income”?

    I know this discussion topic has been ongoing, so I apologize if an explanation has been given previously.

  2. LD says:

    Sorry, to clarify when I wrote “taxed like income”, I meant “taxed like employment income”

  3. jiHymas says:

    I see no reason to avoid double taxation of corporate profits.

    For some small businesses, the concept is reasonably clear: Joe Blow is making money at his restaurant, or whatever, and you want to make him indifferent as to whether he takes his earnings as income or dividends. I see no clear reason why dividends should not be taxed more, but there’s certainly an argument to be made that they should not be taxed less.

    At the upper end of the scale, however, we are not talking about the earned income of an individual; it is return on capital. There is no logical relationship between the two types of income.

  4. baffled says:

    you will not be able to find a picture of an explosion big enough , to cover the drop in price of pref , or div stocks in general , if the tax treatment of dividends is changed .

  5. jiHymas says:

    you will not be able to find a picture of an explosion big enough , to cover the drop in price of pref , or div stocks in general , if the tax treatment of dividends is changed .

    I’m not sure about that; the only change I advocate is the imposition of a cap on the amount of dividends / capital gains for which an individual can get favourable tax treatment.

    e.g., a million bucks, just for the sake of a figure (which I am completely willing to change following discussion). An individual can designate any combination of dividends and capital gains to be treated as they are currently, up to a total of a million bucks annually. Anything not designated becomes ordinary income.

    I don’t think the effect on market prices would be particularly high; but doubtless models of varying credibility will come out in the course of discussion.

  6. stusclues says:

    “An individual can designate any combination of dividends and capital gains to be treated as they are currently, up to a total of a million bucks annually. Anything not designated becomes ordinary income.”

    I’m not sure that the impact would be dramatic either in this scenario. For those grey hairs that have structured their retirement income to include a good whack of preferred share dividends, the $1M (or whatever) cap wouldn’t affect their preference for preferred shares terribly.

    The desirability of preferred shares by family offices, UHNW-crowd and people-pretending-to-be-corporations will shake out with price adjustments for sure. However, I suggest that the current seniority spread is so extreme that further price decreases in the pref space will kill off any thought of new issuances, and a combination of buy backs and yield seeking will be a mitigating factor for how low prices can go.

  7. baffled says:

    hello , james under the sensible change you mention , then the price drop would probably not be that dramatic . i expect our bankrupt gov , to make a more drastic change as they go after “the rich” , and that i believe will result in a large price drop . i would expect the gov to argue the tfsa provides enough of a shelter , and just change the tax rate on div income along with the cap gain inclusion rate

  8. mbarbon says:

    Or could they add a “Surtax” on dividend income, just like “overall income” when they compute the amount of tax owed.

  9. dodoi says:

    James, would you advocate capital gain tax on the principal residence too?

  10. baffled says:

    dodoi , unless there is a drastic change in this gov policies that encourages growth ( canada has had the opposite , for the last 5 years ) ( and every country will be trying to attract companies to move and grow their economies ) i do not think anything will be ignored as a source of tax revenue

  11. stusclues says:

    “i do not think anything will be ignored as a source of tax revenue”

    I’m for comprehensive tax reform, including wealth taxes, and have “stepped in it” on this board before 🙂

    However, if we assume that incrementalism will win the day and the minority government will stick with taxation of “flows”, then perhaps a NVCC-style approach could be used? (For the record, I like James’ concept of capping so this is just an alternative).

    Basically, existing preferred shares would be legislated to sunset in 5 years (or something!). This would put a floor under existing share prices (basically eliminate a Halloween Massacre scenario like with income trusts) and give companies time to adjust their capital structure while increasing tax revenue for the government. Investors would realize capital gains (taxable!) in exchange for the dividend tax credit.

    We’d probably see an acceleration of buy backs and a new class of preferreds emerge (at higher coupons/resets!) possibly with new features. Essentially, some other value (beyond dividend tax credits) will need to be used by companies to attract buyers to prefs in exchange for the flexibility to turn dividends on and off (in theory not practice) in perpetuity.

  12. LD says:

    “the only change I advocate is the imposition of a cap on the amount of dividends / capital gains for which an individual can get favourable tax treatment.”

    I’m certainly no tax expert, but Canada’s tax system seems in line with other jurisdictions that provide advanced social programs. Canada’s marginal tax rates for employment income and dividend income are similar to those nations. It’s not like Canada is giving some crazy good (favorable) deal on dividend taxation (considering that dividends are paid out of after tax income at the corporate level)

    So James, why do you advocate imposing an investment income cap for tax purposes? Do you feel that wealthy investors are not paying a fair amount of tax, or is it to decrease the wealth gap, or is there some other reason?

  13. jiHymas says:

    Canada has a massive infrastructure gap that is not being addressed. We can pretend all we like that our budgets are balanced – or nearly so – but when bridges become unsafe and commuting times increase, we learn just how much we have been borrowing from the past.

    There is also a redistributional aspect to my recommendation. The PBO report discussed in the main post reveals the staggering wealth of the favoured few. I see no fundamental reason to provide these people with a special tax break; unlike Joe Lunchbucket, they need no special encouragement to save for their retirement!

    Modern technology, by increasing the ‘leverage’ available to innovators, has expanded the rewards for innovation – and early adoption of such innovation – beyond all recognition. This rising inequality can ultimately lead to widespread social disorder – and even if it doesn’t, I have no wish to live in a Brazilianized world divided between gated neighborhoods and favelas.

    On a strictly numeric basis I urge you to examine Canada’s recent history of deficits. Over $100-billion in deficits was incurred in the early stages of the recession caused by the credit crunch; there has been absolutely no effort made to pay that back. We simply got back to break-even, patted each other on the back, and then started cutting taxes again so the rich would get richer.

    We’re currently about $250-billion in the hole due to the coronavirus and that’s just federal. What happens when you include the provinces? Doubles, maybe? There’s informed talk of a $40-billion deficit in Ontario.

    How’s that getting paid for?

  14. jiHymas says:

    James, would you advocate capital gain tax on the principal residence too?

    No, not really.

    There are a couple of reasons for this:
    i) if you put a capital gains tax on principal residences as the Americans do, you are logically obliged to make interest payments on mortgages tax deductible. I suspect that this would be largely a wash in terms of revenue and a distortion of the market in that rent payments would continue to be made with after-tax funds.
    ii) a principal residence is logically property held for personal use.

    But why do I say ‘not really’? Well, a case can be made to put a cap on the total value. I see nothing wrong at first glance with saying that the first two million (?) dollars worth of personal residence real estate falls under the ‘personal use’ exemption, but anything above that is a taxable investment. However, this is something I haven’t thought much about.

  15. baffled says:

    james you ask ..”How’s that getting paid for? ” odds are good it is never getting paid . i think a better question is , when is the great world wide debt reset going to happen , and what does our money and world look like after it does ?

  16. jiHymas says:

    james you ask ..”How’s that getting paid for? ” odds are good it is never getting paid .

    You could well be correct.

    However, I think back to 1994, when I was a junior portfolio manager trading Canada bonds on behalf of clients.

    There were very definite fears amongst the dealers’ proprietary trading desks that a Canada bond auction would fail. That would probably have been a disaster; interest rates would have rocketted and there would have been significant capital flight.

    It never happened. But fortunately, that fear was successfully communicated to the politicians, tight austerity was implemented and government finances were repaired.

    So … I’m hoping for a repeat of that, which I think is the best we can hope for. The alternative will be very, very messy.

  17. peet says:

    James, interesting that you should remember this … so I’m posting a link to a 2011 article from the Financial Post that also dealt with this 30-minute moment and, more generally, the debt bomb(s) at the time.

    https://business.financialpost.com/uncategorized/lessons-from-canadas-basket-case-moment

    It too makes for an interesting read, if for no other reason than it shows how leadership at the top willing to make necessary (but politically very risky) decisions can make a difference.

Leave a Reply

You must be logged in to post a comment.