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1. All about the changes to the capital gains inclusion rate Disclaimer: The following content is provided by and is the opinion of Invesco Canada Ltd. Equitable does not guarantee the adequacy, accuracy, timeliness, or completeness of the information. Equitable shall not be liable for any errors or omissions in the information provided by Invesco.
   
   
   What has changed?
   One noteworthy measure to come from Budget 2024 is the proposed change to the capital gains inclusion rate, which was previously held steady at 50% since 2001.
   
   For individuals, capital gains more than $250,000 annually will be subject to an increased 66.67% inclusion rate as of June 25, 2024, while the capital gains up to $250,000 will continue to be subject to the existing 50% inclusion rate. As a transitional measure for 2024, only the capital gains realized by individuals on or after the effective date of June 25 that are above the $250,000 threshold will be subject to the increased inclusion rate.
   
   For trusts and corporations, the inclusion rate on all capital gains will increase from 50% to 66.67% starting on June 25, 2024.
   
   
   
   
    
   Who is affected?
   
   Impact to individuals
   Budget 2024 proposed to add transitional rules which would specifically identify capital gains and losses realized before the effective date (Period 1) and those realized on or after the effective date (Period 2). The effective date is June 25, 2024. Capital gains realized on or after that date will have an inclusion rate of 50% on the amount up to $250,000, and an inclusion rate of 66.67% on the amount above $250,000. All capital gains realized prior to the effective date will have an inclusion rate of 50%.
   Take Ontario as an example, the proposed higher inclusion rate on capital gains would effectively increase the average federal-provincial marginal tax rate for Ontario residents on capital gains above $250,000 at the top marginal tax rate from 26.76% to 35.69%. A more detailed analysis on the impact of these changes to an individual’s tax rate is discussed below.
   For net capital gains realized in Period 2, the annual $250,000 threshold would be fully available in 2024 (i.e., it would not be prorated) and it would apply only in respect of net capital gains realized in Period 2.
   The $250,000 threshold would effectively apply to capital gains realized by an individual, either directly or indirectly via a partnership or trust, net of any: current-year capital losses, capital losses of other years applied to reduce current-year capital gains, and capital gains in respect of which the Lifetime Capital Gains Exemption, the proposed employee Ownership Trust Exemption or the proposed Canadian Entrepreneurs’ Incentive claimed.
   Two common scenarios of reaching the $250,000 capital gain threshold are the deemed disposition of capital property at death, and the emigration from Canada (i.e., becoming a non-resident for income tax purposes). We have provided additional details on these topics below.
    
    
   Deemed disposition upon death
   When an individual passes away, they are deemed to have sold their capital property (e.g., units or shares of mutual funds, shares of corporations, and real property) at its fair market value (FMV) immediately before their death. If a capital gain arises because of this deemed disposition, that capital gain is reportable on the deceased’s final (terminal) tax return and the taxes owing as a result, if any, would be payable by the estate of the deceased. However, there are provisions that allow taxes to be deferred when the property is transferred to a spouse. For example, if a capital property is transferred to a surviving spouse or common-law partner, subsection 70(6) of the Income Tax Act (Canada) automatically deems the deceased to have disposed of that property and the spouse or common-law partner immediately acquires the same property at the deceased transferor’s adjusted cost base (ACB). This is commonly referred to as the “spousal rollover”. Another potential strategy to manage potential large capital gains taxes at death is life insurance, since the death benefit is typically paid out tax-free.
   Without careful planning, the estate value could be substantially reduced by the changes to the capital gains inclusion rate. Furthermore, it would be prudent to ensure there are liquid assets or cash available in the estate to cover the associated tax liabilities.
   
   Non-resident of Canada – Departure tax
   Residency in Canada for income tax purposes is a question of fact, which primarily depends on the individual’s residential and social ties in Canada. When an individual becomes a non-resident of Canada, they are deemed to have disposed of and immediately reacquired certain types of property at FMV. The tax incurred because of this deemed disposition and reacquisition is also known as the departure tax. Some examples of properties subject to departure tax include securities inside a non-registered investment portfolio, shares of Canadian private corporations, and real estate situated outside of Canada. Note that there are some properties that are exempted from the departure tax, including: pensions and similar rights (including registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and tax-free savings accounts (TFSAs)) and Canadian real property.
   The departure tax rules coupled with the increased capital gain inclusion rate above the $250,000 threshold may incur additional tax payable for emigrants. However, there is an option to defer the payment of departure tax on income associated with the deemed disposition upon emigration. By making an election, the individual would pay the tax later, without interest, when the property is disposed of. This election can be done by completing CRA Form T1244, “Election Under Subsection 220(4.5) of the Income Tax Act, to Defer the Payment of Tax on Income Relating to the Deemed Disposition of Property," on or before April 30 of the year following their departure from Canada.
   
   Impact to Entities
   Corporations and trusts will also be impacted by the increased inclusion rate as of June 25, 2024. Unlike individuals, corporations and trusts will not have access to the old inclusion rate on the first $250,000 of capital gains: they will be subject to the new 66.67% inclusion rate from the very first dollar.
   With the above in mind, there will be options available to shelter corporate and trust capital gains from the new inclusion rate.
   
   For corporations:
   The lifetime capital gains exemption (LCGE) can be used to eliminate capital gains taxes on the sale of qualified small business corporation shares (generally, these are shares of a Canadian-controlled private corporation that carries on an active business). The LCGE is also available on the sale of qualified farm or fishing property. The current lifetime limit for the LCGE is $1,016,836. Budget 2024 proposed to increase that limit to $1,250,000 starting on June 25, 2024, so certain business owners will be able to reduce or eliminate their exposure to the new inclusion rate if they are able to make use of the increased LCGE limit.
   
   For trusts:
   Budget 2024 suggests that capital gains allocated by a trust to its beneficiaries on or after June 25, 2024, will be included in the beneficiaries’ income at the old 50% rate up to the beneficiaries’ first $250,000 of capital gains for the year. While the specifics are not yet available, this opportunity will likely create further planning considerations surrounding the allocation of capital gains from a trust to its beneficiaries to reduce taxes. Capital gains can generally be allocated to a beneficiary for tax purposes when they are actually paid to the beneficiary, or when they are payable to a beneficiary (i.e., the beneficiary hasn’t received it, but has a right to demand payment of the capital gain). The option of making income paid (or payable) to its beneficiaries and allocating such income to be taxed in their hands will largely depend on the trust terms.
   
   Historical reference: capital gains inclusion rate
   Those of us around long enough, understand that this recent change was not the only time the capital gains inclusion rate has deviated from the 50% inclusion rate. Over the years, capital gains tax rate has ranged from nil to as high as 75% as indicated in the table below.  In fact, the first instance of capital gain tax was introduced in 1972!
   
   
    
   Excluding the 2024 tax year, we have given a rough estimate on the percentage of time spent at each of the various capital gains inclusion rates over the last 42 years. As we can see, for most of the time, the capital gains inclusion rate has remained at the 50 % inclusion rate. In fact, for the last 23 consecutive years, the inclusion rate has remained untouched with the last change being back in tax year 2000 with various changes introduced that year.
   
   
   
   Tax impact by province/jurisdiction
   With the increase in the capital gains inclusion rate, we want to demonstrate the potential tax impact of those changes across jurisdictions in Canada. The table below shows the 2024 marginal tax rate for the highest individual income earners in each jurisdiction at both the 50% and 66.67% capital gains inclusion rate, respectively. The average difference is an increase in taxes payable by 8.45%.
   
   
   
   Next, we look at the additional taxes payable because of the inclusion increase, assuming varying capital gains income levels. Of course, this assumes that the capital gains do not otherwise benefit from a reduced inclusion rate or an outright exemption such as eligible in-kind donations of securities to registered charities, or shares that qualify for the lifetime capital gains exemption, to name a few.
   
   
   
   Understanding the tax implications of investing is an essential part of financial planning and reinforces the importance of working with a knowledgeable financial advisor to understand the long-term impact of these changes as it applies to personal situations. No doubt, tax rates influence capital allocation decisions. Canadians who take more inherent risk with their capital have traditionally been afforded preferred taxation rates promoting innovation through capital investment, something the government can do with good tax policy to encourage business growth and spur economic expansion. This is evident in the breakdown of the tax rates depending on the characterization of the income as noted in the table below.
   
   
   
   Clearly the tax rates reflect the added capital risk investors and business owners take. We can clearly see the preferred taxation rates afforded on small business income and at the general corporate tax rates on income over the small business limit, compared to the tax rate on interest income or that of employment income. That tax-preference also extends to investors of “riskier” allocations of capital in marketable securities such as stocks, bonds, mutual funds, and exchange traded funds, to name a few. The tax rates of less-risky investments (such as money market instruments) do not benefit from the capital gains tax-preferred inclusion rates. With the latest move, there is not much difference in earning eligible dividend income from Canadian resident corporations and from dispositions resulting in capital gains.
   Some pundits have declared the move as a disincentive to capital and business investment and may encourage businesses to move into more tax-favoured jurisdictions outside Canada. The Federal government has promoted the change as impacting a very small overall percentage of investors, estimated at 0.13% of Canadian individuals and 12.6% of corporations. Further, the move has been argued by the Liberals as necessary to work towards “intergenerational fairness”.
   
   How to prepare for the changes?
   For now, advisors may want to start educating their clients about the basics of the changes, which starts with comparing the current inclusion rates with the new inclusion rates.
   Individual investors with large unrealized capital gains will also likely ask if they should crystallize their capital gains before June 25th to save money on taxes in the long run. The assumption that selling now will result in overall savings will not be correct in all cases, however. There is an opportunity cost to paying taxes upfront, rather than deferring those taxes to a later year.
   For example, let’s assume an Ontario client owns a $2.5 million non-registered equity portfolio with $2,000,000 in unrealized capital gains. They had no intention of selling those investments for another 5 yeas, but in light of the upcoming changes, they are considering selling immediately, paying the capital gains taxes now, then reinvesting the net amount after taxes back into those same investments for the 5-year investment period. They are currently in the top marginal tax bracket in Ontario (53.53%) and expect to continue to be in 5 years’ time. The assumed average rate of return on their investments is 6% annually over the next 5 years.
   
   
   
   
   
   As can be seen in this example, at 6% annual compound growth rate, the option to realize much of the capital gains now resulted in a higher overall return in the amount of $61,992.66 over the 5-year period due to the lower inclusion rate. Alternatively stated, if the investor does not crystallize the gains today, the equivalent rate of return needed to have the exact net after tax amount at the end of the 5-year period (the “breakeven return”) would be a 6.60% compound annual return. While this certainly will not be true in all cases, this is the sort of analysis that will have to be conducted when assessing whether it makes sense to realize capital gains in 2024. The rate of return on investment and the investment horizon, among other things, are important determining factors.
    
   Although we used securities investment in our example, a similar analysis can be done for other kinds of property held, such as a vacation property that is unlikely to benefit from the principal residence exemption. In addition, taxes often take a back seat to other planning considerations. These conversations should be had with the primary goals of the client in mind, which may supersede tax planning considerations.
    
   For corporate investors, it will be important to emphasize the impact the capital gains inclusion increase will have on small business owners. As a refresher, a corporation is a separate legal entity from the shareholders who own it and is subject to tax on the income it generates. Income is first taxed within the corporation before it can be passed to the shareholders in the form of dividends out of its retained earnings. To avoid double tax on income that passes through a corporation to shareholders (and to prevent any unintended tax advantages), a dividend gross-up and tax credit model is applied at the individual level, along with a tax refund mechanism to the corporation on passive investment income. This is designed to integrate the tax system between the two entities: individual and corporation. Ideally, perfect integration is achieved when after-tax income is equal, whether it is earned individually or through a corporation. In reality, depending on the province and type of income earned, there could be a tax cost in earning passive investment income through a corporation, including earning passive investment capital gains income. Currently there is a tax cost of earning capital gains income through a corporation across all Canadian provinces/jurisdictions.
    
   The latest change further increases the cost of earning passive investment income inside a corporation, though we do not yet know what changes will be made to the corporate tax refund mechanisms. As noted in the table below, the increase averages approximately 8.43% and closely equates the rate on eligible dividends. This rate reflects the initial tax rate on passive investment income earned within an active business.
   
   
   
   For many small businesses, and perhaps to long-term individual investors, this increase in the tax rate will feel unfair as the accumulation of earning a pool of assets for retirement is often done within their small business corporation, and in many cases the sole source of retirement funds.
   If an immediate crystallization of accumulated capital gains is not desired, what should investors consider in the longer run? Although many details of the new proposed rules are yet to be clarified, here are some general considerations.
   For individuals, it may be helpful to plan the timing of future dispositions to stay below the annual $250,000 threshold. Also, it may seem obvious but maximizing investments within registered plans, including the new first home savings plan (FHSA) where eligible, can reduce exposure to future capital gains tax. Moreover, estate planning becomes even more important as the potential tax payable on the deemed disposition of capital property at death rises. On that front, strategies to reduce capital gains at death could be considered, such as inter-vivos gifting, charitable donation, spousal rollover, and acquiring life insurance to provide sufficient liquidity to the estate.
   For business owners, some strategies to limit future capital gain exposure may include contributing to an individual pension plan (IPP), conducting an estate freeze to pass on future capital gains to succession owners, and ensuring the small business shares qualify for the LCGE. The suitable strategies are highly dependent on the business needs and personal situation of the business owner.  
   
   Acting too soon or not fast enough?
   Finally, there is what many in the industry have been calling a “change of law” risk. That is, within the next year and a half, a federal election is scheduled, and this capital gains inclusion tax policy will surely be a primary election issue. As part of that election platform, parties may promise to repeal it outright or alter its scope and application. Consider also that any changes in the capital gains inclusion rate could be retroactive or simply not apply in all cases.
    
   The information provided is general in nature and may not be relied upon nor considered to be the rendering of tax, legal, accounting or professional advice. Invesco Canada is not providing advice. Readers should consult with their own accountants, lawyers and/or other professionals for advice on their specific circumstances before taking any action. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments.  Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.  Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd
   
   Date posted: May 23, 2024
2. Application cloning option now available on EZcomplete As of September 10^th, you will now have the option to clone any Life Insurance and Critical Illness applications that is showing on the EZcomplete dashboard. “Cloning” means the information that has been completed in the existing application is duplicated in a new application.
    
   This feature is meant for situations where multiple applications are being completed and at least one of the parties (the policy owner or insured person) is the same. For example, a single policy owner might own policies on the lives of each of their children. Cloning the application will save re-typing the information about the policy owner into each application.
    
   Please note the following important details regarding cloning:
    
   • Cloning the application will duplicate all information that has been completed in the existing application into the new application.
   • In the family situation described above, the information about the policy owner should be completed in the original application. The application should then be cloned before entering any information about the insured person, as there will be a different insured person for the new application.
   • Cloning applications can be convenient, but it carries risk. It is imperative that the advisor review every section of the new cloned application to ensure that the information is meant to apply to the new application. If an advisor incorrectly includes information about an individual in the new application, this could give risk to a privacy breach or to liability for the advisor if the questions are answered incorrectly for that individual.
   • If the application was submitted and is no longer on the dashboard you will not have the option to clone it.
   • You will not be able to change the product type on a cloned application so if you need to select a different product, you will need to start a new application.
   • Any documents that were attached to the previous application will not be cloned. The documentation will need to be attached again if required.
   • All information from an existing application will be duplicated to the cloned app up to the Signatures step (step 8). Signatures/advisor report will need to be obtained and completed again on the new cloned application.
    
   Resources
   • EZcomplete FAQ
    
   Please contact your Regional Sales Manager for more information
    
3. 5 Things You Need to Know About Equitable Generations Universal Life

   Here are five things you need to know about Equitable Generations™ Universal Life

   1. Affordability

   Because Equitable Life is owned by its policyholders, we don’t have to worry about paying shareholders. That means we can focus on offering competitive pricing!

   2. Investments

   Equitable Generations Universal Life is built for the 21^st century with investment options that matter to today’s buyer including Target date, Environmental, Social, and Governance (ESG) funds for sustainable investing.

   3. Fees

   Equitable Generations has eliminated most universal life fund administration fees as well as the policy administration fee.

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   Equitable Generations has a suite of contractual and non-contractual claims features we call KIND, designed to help your family navigate the claims process with ease.

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   With such competitive pricing, fantastic investment options and minimal fees. Equitable Generations Universal Life provides a level of flexibility rarely seen in the Universal Life space.

   
    
   
   See Equitable Generations Universal Life for yourself within one minute - try the EZStart quick quote software for advisors, available on EquiNet!
   
   Please contact your local wholesaler for more information. 
   
   ^TM and ® denote trademarks of The Equitable Life Insurance Company of Canada. 

4. [pdf] Daily/Guaranteed Interest Account Contract
5. ALERT! Temporary Suspension of Ground Service – British Columbia
   The British Columbia government has declared a provincial state of emergency following severe flooding and landslides, causing widespread damage and road closures preventing ground access into and out of the province.
    
   Please be advised that we are not accepting courier shipments traveling by ground into and out of British Columbia.  Any printed materials ordered from Equitable Life will be held until the situation in BC is resolved. In the meantime, please feel free to use our digital copies.
    
   If you have any questions or concerns, please contact your Regional Sales Manager.
    
    
6. A new look and feel for EZtransact, our digital self-serve tool We’re excited to introduce a new look and feel for EZtransact™, our digital self-serve tool.  EZtransact allows you to:
   • •  Help a client set up a one-time or recurring deposit or edit an existing pre-authorized debit.
   • •  Manage client segregated fund policies conveniently and eliminate the hassle of filling out forms and facilitating signatures.
    
   EZtransact now has a simplified and modern design that will make managing pre-authorized debit requests even easier!
    
   Check out EZtransact. And stay tuned for more exciting digital enhancements coming soon!
    
   If you have any questions, please contact your Regional Investment Sales Manager. 
   
   Posted November 27, 2023
7. Equitable can help clients this tax season

   It is tax time and clients should be receiving tax slips and deposit receipts by now.

   Check out the Tax Slips: A Quick Reference Guide which gives a taxation breakdown by product. Review Insights into Non-Registered Taxation offering a detailed explanation on investment income, and why T3 tax slips generate on non-registered segregated funds.

   Do clients have questions about contribution limits? Retirement Income Fund minimums? or Canada pension maximums? Check out Equitable’s handy 2024 Facts & Figures guide.

   If you have further questions,  please contact your Regional Investment Sales Manager or one of our Client Services Representatives at 1.866.884.7427.  
   
   Posted February 23, 2024

8. Product Enhancements - Critical Illness Equitable Life has exciting product enhancements that will help you offer more options to clients. 
   
   Access our Virtual Product Launch NOW. Grab a coffee and get ready for this exciting news! Hear from our leaders and learn about our exciting product enhancements.
   
   NEW! EquiLiving plans and riders enhanced with:
   • 20 pay options with coverage to age 75 or coverage for life
   • Support from Cloud DX to help monitor a client’s well-being from treatment to recovery.
   • Added Acquired Brain Injury as a covered critical condition 
   • 30-day survival period removed for all non-cardiovascular covered conditions
   • No age restriction to claim for Loss of Independent Existence (LOIE)
   • EquiLiving Benefit now pays the higher of the EquiLiving Benefit or the Return of Premium Rider Benefit (not including Return of Premium on Death)
   • And so much more …
   New Illustration software available on February 11, 2022 
   The updated illustration software will be available for download after 9 a.m. ET on Friday, February 11, 2022, and will include all the Equimax and EquiLiving enhancements.
   
   See the Equitable Sales Illustrations Update for information on how to download the software or check for updates. 
   
   Please review updates to the commission schedule A for these new enhancements.
   
   Learn more
   • Transition rules are available
   • Watch our virtual launch event video now! (Approx. 20 minutes)
   • Watch our product launch intro video here
   • Visit our launch event page with product change details and more here
   • Marketing Materials
   Get ready to make 2022 your best year yet for your sales! 
   
   Please contact your Regional Sales Manager for more information. 
9. Product Enhancements - 10 Pay Equitable Life has exciting product enhancements that will help you offer more options to clients. 
   
   Access our Virtual Product Launch NOW. Grab a coffee and get ready for this exciting news! Hear from our leaders and learn about our exciting product enhancements.
   
   NEW! 10 pay premium option with Equimax Estate Builder®
   • The new EquiLiving® 20 pay rider options will be available on Equimax® plans
   New Illustration software available on February 11, 2022 
   The updated illustration software will be available for download after 9 a.m. ET on Friday, February 11, 2022, and will include all the Equimax and EquiLiving enhancements.
   
   See the Equitable Sales Illustrations Update for information on how to download the software or check for updates. 
   
   Please review updates to the commission schedule A for these new enhancements.
   
   Learn more
   • Transition rules are available
   • Watch our virtual launch event video now! (Approx. 20 minutes)
   • Watch our product launch intro video here
   • Visit our launch event page with product change details and more here
   • Marketing Materials
   Get ready to make 2022 your best year yet for your sales! 
   
   Please contact your Regional Sales Manager for more information. 
10. Protect clients and yourself from cyber attacks Cyber criminals are targeting advisors’ computers and email accounts. They are targeting advisors because you have detailed financial information about clients. These attacks put you and clients at risk by exposing private financial data, allowing unauthorized withdrawal attempts, and easing identity theft. A breach can lead to financial loss and a damaged reputation.
    
    How to stay safe:
    • Use strong security: Turn on multi-factor authentication, change your passwords often, and make sure passwords are unique.
    • Install antivirus or internet software: Use trusted programs such as Norton or McAfee to protect your computer.
    • Keep everything updated: Make sure your computer’s operating system and software are up to date.
    • Get expert help: Ask an IT professional to check your security system.
    • Be careful online: Take cybersecurity training to learn about new threats. Don’t click on suspicious links, including from people you don’t know.
    • Have cyber insurance: This can help protect you if something goes wrong. You can usually get it through your E&O provider.
    
    Remember: Cyber criminals also target the public, including client email accounts. They may use a client’s email to send you requests that look real. Call clients to confirm emailed requests, especially if someone asks to withdraw money or change banking information.
    
    Our clients trust you with their financial future. Do everything you can to keep their information safe.