Last week we commented on the unintended consequences of the changes in the taxation of incorporated small businesses, as it would have a major impact on the farming community. The Federal government is issuing a series of announcement this week hoping to counteract some of the criticisms. Apparently, the Finance Dept received 21,000 submissions by the Oct 2nd deadline.
On Monday, the Liberal government announced that they will reduce the small business corporate tax rate from 10.5% to 9% by 2019. However, there are proposed increased effective tax rates on dividends from small companies and higher capital gains for distributions to owners. The 9% tax rate was part of their 2015 election platform promises, but added taxes on dividends and capital gains may offset the benefit for the average farmer/business owner.
In addition, Bill Morneau, the finance minister, indicated that farm inter-generational transfer issue would be tweaked. No further details were provided, but we will post them here when they are.
What’s happening with the markets?
I had a close friend contact me about the world/US events, wondering why the US stock market keeps going up (hit a record 23,000 this week) when all the headlines seem to counter that logic.
He was among others who have inquired into why their investment account values continue to make gains while the media is virtually 100% insistence that we are on the verge of a major economic recession/stock market correction and war with North Korea, Russia, Iran, etc.
A recent study by Harvard University done over a two-month period indicated that 88% of the articles about President Trump published by the US media were cast in some form of negative tone. It’s funny how eye-catching media articles conveniently crowd out some of the positive economic news that is occurring. Fear and doom sell advertisements, I suppose.
For the last eight years the US has had economic growth in the 1 to 2% range. Limited growth and associated unemployment normally imposes a drag on investment growth.
Currently, US economic growth is in the 3.2% range which is the highest in the last ten years. Unemployment rates are at the lowest levels going back 43 years, and the number of actual people employed is the largest in the past decade.
Bottom line: when companies are growing, making money and hiring employees, investors are likely to buy their stocks to share in the prospective future profitability.