Canadian investors to face increased capital gains tax impacting returns

Ottawa’s decision to increase the capital gains tax has sparked concerns among analysts who believe it will have a negative impact on Canadian stock portfolios. According to analysts at CIBC Capital Markets, the corporate tax hike is just one of many decisions that have reduced the returns investors can expect from Canadian public equities.

The sectors most affected by these tax changes are banking, energy, and communications, which have historically been targeted by government policies. These sectors have generated a significant portion of the S&P/TSX earnings over the past decade and are popular among retirees due to their higher dividend yields.

The proposed change in the federal budget will increase the capital gains inclusion rate for corporations and individuals with gains over $250,000. This will lead to reduced profitability and return on equity for corporations, impacting their ability to grow dividends and provide income to retirees.

As a result of these tax changes and regulatory pressures, Canadian equities have become less appealing to investors. Many Canadian investors are now shifting their focus to foreign assets, particularly in the United States, where companies have been more profitable and have faced fewer regulatory hurdles.

Overall, the tax changes are expected to have a significant impact on the Canadian stock market and could lead to a further exodus of investors from domestic equities. The long-term implications of these changes remain to be seen, but for now, analysts are advising caution when investing in Canadian stocks.