Up Financial – September Market Update
For all of our clients outside of Southern Alberta, we hope you’re enjoying what’s sure to be a pleasant fall. For everyone else, we’re right there with you wishing that we had better weather. A foot of snow over the weekend is no one’s idea of a good time!
Our update for the month of September is going to be a bit short as October will come with not one but two updates – our Quarterly Planning update which will also touch on the outcome of the upcoming federal election as well as our more detailed quarterly market updates.
How are the markets doing right now?
September was another month in what many asset managers are calling an ‘exhausting environment of unpredictable volatility’. We’ve seen a blitz of positive and negative news bites that have impacted markets, but there are a few major events that impacted returns over the past 4 weeks:
Saudi Aramco takes a massive hit to their oil production capabilities due to precision missile strikes knocking their Abqaiq production facility offline. This in turn triggered fears in North America about energy security (1), leading to a surge in energy equity prices in Canada (with some companies such as Enbridge and CNRL trading up 7.3% and 10.9% respectively over the month(2)). While many managers are lighter in energy exposure than they were prior to 2014, this was still a positive pressure, although the question remains as to how long we might see these prices buoyed by a single occurrence.
Brexit looks like it may be back off the table for the time being, with PM
Boris Johnson struggling to achieve any real policy objectives during his short tenure (and now looking like he will face a vote of no confidence in the coming week(3)).
The US House of Congress has officially begun impeachment inquiries(4).
While there is only a small chance impeachment would proceed past a Republican dominated Senate, this has further injected political volatility into the already tumultuous American markets.
1: How Saudi Attacks could be the spark global investors need to return to the Canadian oilpatch.
2: Stock performance from Morningstar Canada
3: UK MPs plan vote of no-confidence in Boris Johnson
4: Nancy Pelosi Announces Formal Impeachment Inquiry of Trump
Canadian Federal Election 2019
So far September has been eventful with many parties releasing their election policies and promises. We expect many more to come as the main parties release their official election platforms but we wanted to highlight a number of the major financial planning related platforms that we have been asked about over the past week.
On September 24th the Conservatives announced that if elected they will repeal certain tax changes affecting small businesses. They promised to exempt spouses and common law partners from the Tax on Split Income (commonly known as TOSI). TOSI was brought in under the current Liberal government to reduce the ability to split income with individuals not working directly in the business in which they are a shareholder. The exemption of spouses from TOSI restores the ability for families to split income from corporate profits.
The Conservatives committed to restoring full access to the small business tax rate for corporations earning more than $50,000 in passive income per year. For corporations earning more than $50,000 per year in passive income (meaning income from investments rather than from ongoing business) their small business tax deduction is currently reduced by $5 for every 1$ they earn in passive income over $50,000. What this means is that businesses with considerable retained earnings will no longer lose their small business tax rate when their assets grow by more than $50,000 in a given year. The Conservatives will also restore full access to refundable taxes for corporations on the distribution of eligible dividends. The full list of the Conservative Party Sept 24th release can be seen here.
The Liberals have announced that if re-elected they will cut corporate taxes in half for companies that develop and manufacture zero-emission technologies. This is a part of their goal to achieve net-zero emissions for Canada by 2050. Under this change we would see corporate taxes reduced from 15% to 7.5% and from 9% to 4.5% for qualifying small businesses.
The Liberals also announced that they will commit to increasing Canada Pension Plan and Old Age Security by 25% for pensioners once they reach the age of 75. It is estimated that this will lift over 20,000 seniors out of poverty and increase the pensionable income of 1.2M Canadians. On top of the CPP and OAS increase, the Liberals have also promised to increase the survivor benefit which is paid to those whose spouse passed away but were previously collecting CPP and OAS. The full Liberal Party election platform was just released and can be seen here.
In addition to the above, both Conservative and Liberal parties have both pledged changes to personal tax rates. The Conservatives announced they would reduce the tax rate on the lowest federal tax bracket (up to $47,630) to 13.75% from 15% over four years. The Liberals would raise the basic personal amount by almost $2,000 over four years for people earning under $147,000 a year.
While we can speculate about potential tax changes, until a party is elected and promises become realities our recommendation is to continue with planning under the current rules. We’ll continue to keep clients updated and once the full election platforms are released by all parties we’ll send an email with a link.
Lastly, we live in a wonderful country where we have the ability to have a say in our leadership and at Up Financial we sincerely hope that you take the time to vote this October and make your voice heard. Whether you support the Liberals, Conservatives, NDP, Green, People’s Party or the Bloc Quebecois, what’s most important this October is that you make your voice heard.
If you’re not sure which party represents you best, the Vote Compass is a great place to start learning!
Thank you as always and, for our Albertan clients, stay warm!
