It is important to remember that in the long run, who sits in the White House has little bearing on the direction of stock markets. However, there can be market volatility both before and after the election has taken place. With that said, let’s take a look at Joe Biden’s platform and its potential market implications:

TAX PLAN

Biden proposes a host of changes to the tax code, which would impact both corporations and high-income households:

• Corporate tax increase from 21% to 28% (was 35% prior to 2017)
• Imposing 15% minimum tax on profits
• Doubling the existing minimum tax on profits for foreign subsidiaries of U.S. firms from 10.5% to 21%
• Personal Income exceeding $400,000 increased from 37% to 39.6%
• Personal Income exceeding $1,000,000 would see dividend and capital gains income taxed the same as normal income

Market implications:

• Investors potentially selling stocks to avoid higher tax rate
• The most significant income tax increase since the periods following the World Wars and the Great Depression
• Note that given the downturn, tax increases are likely inevitable regardless of which candidate wins

HEALTH CARE PLAN

Biden wants to improve upon the Affordable Care Act (i.e. Obamacare):

• Increase financial support to those struggling to afford insurance
• Provide a government-run option to compete against private insurance
• Lower Medicare eligibility from 65 to 60
• Plan cost estimate is $750 billion over 10 years

Market implications:

• Increased government spending thus continuing the deficit from previous administrations
• Effect on healthcare stocks, lowering profitability
• Note that drug companies are likely to be hit with price controls regardless of who wins as Trump – in an effort to pre-empt the Democrats – recently signed Executive Orders aiming to lower prescription drug costs

ENVIRONMENTAL PLAN

$2 trillion, four-year plan proposed for green energy, Biden’s most expensive platform proposal:

• The proposal calls for fossil fuel use in cars, as well as to generate electricity, to be eliminated by 2035 with the economy becoming net-zero carbon emissions by 2050
• Does not include ban on oil and fracking (Ohio and Pennsylvania, two key battleground states, have significant fracking operations and proposing a ban would hurt him in these states)

Market implications:

• Significant increase in governmental spending
• New restrictions and tightening environmental regulations, reducing subsidies to fossil fuel companies
• Increased focus on green energy companies

The belief is that the tense U.S.-China relations will keep big U.S. tech companies from being broken up, since neither party wants U.S. tech companies to become much smaller than their Chinese counterparts. However, there is an increasing appetite for stronger regulations on the tech firms, and remember that Biden’s 15% minimum corporate profit tax would impact the tech giants, who currently pay almost no tax.

The U.S. federal deficit – and debt level – is ballooning. Neither party has produced a platform whose tax increases (revenues) and/or budget amendments (expenses) come close to financing their agendas. Further increase in the federal debt could force the U.S. government to keep rates lower than inflation to help the government chip away at its debt level (similar to post-WWII). Lower rates tend to fuel equity markets, as access to cheap money can help companies expand their internal infrastructure, hire more people, etc.

A tight election result could cause a significant market disruption, especially if one candidate refuses to accept the results. President Trump has repeatedly claimed the election process is “rigged” and has set the stage to challenge the election’s legitimacy if he loses. Mail-in ballots are unlikely to be completely counted for days or weeks after the November 3rd election. 24% of votes in 2016 were cast via mail-in ballot, and that number could increase as people attempt to avoid COVID infection as the virus continues its spread throughout the fall.

The most recent example of a drawn-out election occurred in 2000, when Al Gore did not concede defeat until well into December of 2000, about 6 weeks past the election day.

A Democratic sweep of the White House, the House and the Senate would likely result in the most market movement in the near-term. However, the Democrats’ promise to increase spending should help to stabilize rocky markets. An outcome where the Senate and House are controlled by opposing parties would require opposition buy-in to enact significant legislative change.

There is no proven link between a president’s party and market returns. Ultimately, investors should focus on things they can control, such as their rate of savings, utilizing existing tax laws to their best advantage, and of course, remaining invested in a well-diversified, high quality portfolio.

Sources: National Bank, Forbes

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Tax payment deadline: Two weeks ago, the payment deadline was re-extended by one month from September 1st to September 30th for those who either have a balance owing on their 2019 tax return, or who have to make 2020 instalments.

CRA said that it will not charge penalties or interest if payments are made by the extended deadline of September 30th. This includes the late-filing penalty as long as the return is filed by September 30th.

Those of you who deferred your March 15th and/or June 15th instalments will be able to defer your September 15th payment as well.

CERB: In July, CERB eligibility was extended from four to six benefit periods. Those eligible for the benefit can claim for up to six, four-week periods.

Nearly one in four Canadians have used the CERB. With the program soon winding downand transitioning back to EI, the Federal government has pledged to create a parallel benefit for contract and gig workers. Details are still scarce at this point, but we will update you when they come out.

Wage Subsidy: The wage subsidy program has been extended until December 19, 2020, but with major changes to the program. You can read more about this in our earlier blog posting here.

Sources: Global News, InvestmentExecutive.com

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1. Better Family Linking Options– you will now be able to consolidate all family assets, by linking clients, including corporate investments, joint client profiles, even other family members
2. Increased Transparency and Customization – You will now be able to view all linked accounts at a glance with one login:
   • • Drill down from the client level (i.e. John Q. Client total portfolio) to the account level (i.e. RRSP, TFSA, etc)
     • You will be able to see market value, book value, asset allocation, risk profile, and performance by account
     • You will be able to see your holdings within each account (specific funds, GICs, etc)
   • • • Individual fund data is available, where you can view key information about each fund you hold: asset allocation, sector allocation, returns data, MER, etc.
     • Transaction History back to Inception
3. More E-Consent Possibilities – You will be able to e-consent to all documents via the Wealthview portal. This means – if you want – the end of wet signatures.

You can watch a short 3-minute video which highlights many of these key changes here.

Let us know if you would like to activate your Wealthview secured portal access, and we can get you set up.

This information is provided for general information purposes only. It does not constitute professional advice. Please contact a professional about your specific needs before taking any action.

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The RRSP also offers other, more immediate advantages. If you are a parent, student or recently laid off employee, here are three ways you can benefit from an RRSP contribution:

Parents: An RRSP contribution will increase your Canada Child Benefit (CCB). Every parent with children under the age of 18 receives CCB payments from the federal government. For each child aged 0-5, there is a maximum benefit of $6,400. For each child aged 6-17, there is a maximum benefit of $5,400.

The benefit amount is calculated based on the family income for the previous tax year and it is subject to clawback starting at the $30,000 mark. Here’s the clawback table (click to enlarge):

For example, a family with 2 children and total household income of $120,000 is subject to a 5.7 per cent CCB clawback on each additional dollar of income. Therefore, when someone in that household makes an RRSP contribution, they are not only saving taxes at their marginal tax bracket (28-40 per cent), they are also increasing their CCB payment for the next year by 5.7 per cent!

Students: Similar to the Homebuyer’s Plan, with the Life Lifelong Learning Plan (LLP) you can withdraw up to $10,000 in a calendar year twice in a five-year period for the purposes of attending a qualifying educational institution.

Employees: Have you recently been laid off or lost your job and been given a severance package? This severance will be considered standard income, and therefore, it will be taxable in full. However, room-permitting, you can contribute some or all of your severance into your RRSP to avoid paying taxes on it.

In addition, for every year prior to 1995 that you worked with the employer you’ve just been laid off from, you get an additional $2,000 in RRSP limit to help mitigate the tax implication of your (potentially large) severance payout.

Bonus Coverage: A Cautionary Tale

Do you have a pension through your work? Does your workplace pension function as your primary retirement income vehicle? That’s great… as long as the company remains afloat. But if the company files for bankruptcy, some or all of your pension may be at risk.

Imagine having what you feel to be a solid retirement plan, with multiple income streams lined up: Canada Pension Plan, Old Age Security (for now), and your workplace pension, perhaps some rental income or some small investment income. Now, imagine up to half that income disappearing virtually overnight. It’s not impossible.

For a very recent example, take the downfall of Sears Canada. Long-time workers and retired pensioners alike were delivered the news that Sears Canada entered bankruptcy protection on June 22nd, 2017. Now these long-serving, loyal employees and retirees will see their pensions slashed by about 19% at a minimum. That figure could also increase in the future.

What is the lesson here? From the perspective of the saver, the lesson is simple: do not rely on any one income stream at retirement, no matter how seemingly foolproof. As much as you are able to, diversify your savings and save for your retirement using a tax-sheltered vehicle such as the RRSP.

You will get a tax savings on your subsequent return, your RRSP will grow in a tax-sheltered environment, and most importantly, you have control of your RRSP. So take action, as even a small amount now makes a big difference later.

If you have any questions about these tips, please don’t hesitate to reach out to us.

Next week, we will send out an RRSP deadline reminder to all eligible clients.

Sources: Dynamic Funds, Canada.ca

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