Canadian Lawyer

www.canadianlawyermag.com 67 "I would submit that the capital gains inclusion rate is likely going to go up because they do have the support of the NDP who want to increase capital gains inclusion rates to 75 per cent from 50," he says. This move has been talked about fre- quently over the last few years, Moody says, and while he doesn't think it's the right thing to do, "if they're going to do it, this is proba- bly the right time because they could force it through quite easily." Timokhov says there are "plenty of grand- mas and grandpas out there in North York, Ont., sitting on run-down pieces of property that they bought for $20,000 or $30,000 that are now in the $5-million and $6- mil- lion range." Right now, we are experiencing one of the largest transfers of wealth in Canadian his- tory — or even world history, he says. If you start taxing those gains, the impact will be across the board, on all levels of income. "Personally, I would be shocked if the capital gains rates went up, even if the NDP supported it," Timokhov says. "I don't see the Liberals being able to sell that to their base." But for Moody, the possibility is real enough that he "can see tax lawyers, probably frantically, between now and the next budget, having clients trigger gains so as to get prefer- ential treatment under capital gains 50-per- cent inclusion rate as opposed to 75." "I can see a lot of that happening between now and budget day," he predicts. Moody says another thing that has the community "a little bit concerned" is the NDP's proposal to increase the top personal tax bracket by two per cent. He says he could see the change going through because there's a need to increase revenue as a result of the spending policies of the Liberals, although they didn't mention it in their platform going into the election. "I can see this being very much something they would support vis-a-vis the attack on the rich," Moody says. "But what this does is it really discourages small countries like Canada with a giant south of the border. It basically says, 'Hey, best and the brightest, we don't want you.' That's the real danger." Moody says Alberta has seen a lot of people leave over the last four years, and if the taxes went up on top of the flight of capital outside of the province, it would be "further devasta- tion." Even if none of the floated tax changes come to fruition, there is a troubling climate of "anti-rich" rhetoric, he says. "The wealthy are not enemies," Timokhov says, noting that his clients are rubbed the wrong way by the suggested taxes and it "prompts them to start thinking about the exit, and that's the truth. "In the end, will they vote? The answer is absolutely yes — they'll vote with their feet." And even though tax lawyers would ben- efit from clients leaving because they would be the ones structuring their exits, it's not the message society should want to send, he says. How long can you take eggs from the golden goose before it walks away? "The overall push of let's tax the wealthy, frankly, is not a healthy debate in any circum- stances. We have to maintain the social peace. You contribute enough and please stay — that should be the message." and predicts disputes over what constitutes a luxury vehicle, for example, or when a vehi- cle crosses into commercial use, which would make it exempt. "Do I see disputes like that happening with creative ways to avoid that tax? Yup, I can see that," Moody says. It's an interesting debate — who should contribute more — but we're living in a soci- ety where 40 per cent of people don't pay any tax at all, Timokhov says. "Upper-middle-class and ultra-high-net- worth individuals bear the main burden of Canadian taxation," he says, and by targeting them with extra taxes, "you're sending the message to basically get out." The Liberals also said they would review tax expenditures for unfair tax breaks, and the 50 per cent inclusion rate for capital gains is one of the biggest tax expenditures, Moody says. "In the end, will they vote? The answer is absolutely yes — they'll vote with their feet." Vitaly Timokhov, Tax Chambers LLP

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