Thane Stenner’s Insight On The Impacts Of High Tax Rates On Canadian Wealth

Taxes are a fact of life, but are they driving Canada’s wealthy to seek greener pastures elsewhere?

Recent conversations across the financial community, including insights from tax professionals, suggest that Canada’s increasing tax burden, particularly on high-income earners, is causing those at the top to think about pulling up stakes. The subject has sparked a broader discussion about Canada’s tax system, wealth flight, and potential reforms.

Senior Portfolio Manager & Senior Wealth Advisor Thane Stenner, CIM®, FCSI® of Stenner Wealth Partners+ at CG Wealth Management Canada discusses the impacts of the high tax rate on Canadian Wealth and what ultra-high-net-worth individuals might expect in the near future.

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Canada’s High Tax Rates: What’s The Issue?

In recent years, the Canadian government has raised personal income tax rates, particularly on top earners. Individuals making over a certain amount, typically above $240,000 a year, face tax rates exceeding 50% in many provinces.

When combined with provincial taxes, the overall burden can go beyond 54% in places like British Columbia, Ontario, and Quebec.

Compare that to the United States, where high earners in some states might hit a maximum of 50% but only in highly taxed states like California. Some states, like Florida and Texas, have no state taxes and thus offer far more favorable conditions.

For a Canadian making $1 million annually, these differences can translate to hundreds of thousands of dollars in savings.

The disparity between Canada’s tax situation and that of warmer, lower-tax jurisdictions has drawn a lot of attention. Just a few percentage points could be the tipping point for someone deciding to move their assets and potentially themselves elsewhere.

Wealth Flight: What’s Behind It?

High tax rates have become a key trigger point for many ultra-high-net-worth individuals reconsidering whether Canada is the best place to live and do business.

While it’s true that Canada’s healthcare and education systems are attractive, the added pressure of a growing tax load can drive even the most patriotic Canadians to look south or beyond for better financial prospects.

“Interestingly,” says Thane Stenner, “the shift hasn’t happened overnight. Changes in the government and the tax code over the last several years have incrementally pushed entrepreneurs and executives to seek out lower-tax jurisdictions.”

Take, for example, the departure tax. When someone leaves Canada, they’re often subject to what’s called a “departure tax,” which captures the income taxes that would have been paid if the individual remained in the country. While this measure initially deterred many from making the move, a growing number of Canadians are now willing to pay it to relocate to more tax-friendly regions. As a result, professionals in the wealth management industry have noted a sharp increase in clients seeking advice on leaving the country.

Though tax alone didn’t always drive these decisions, it’s increasingly becoming the final straw, particularly for entrepreneurs who feel their ability to reinvest in their businesses or their lifestyle is being undercut by high taxes.

Is Canada’s Tax Policy Driving Away Entrepreneurs?

Canada’s tax code hasn’t adapted well to the needs of successful entrepreneurs, executives, and other high earners. Policies targeting private corporations, introduced in 2017, made it harder for business owners to benefit from corporate tax structures, which allowed them to reinvest funds, hire more people, or grow their enterprises.

Increasing deficits and the looming talk of wealth taxes have further spooked this already jittery group.

When comparing individuals earning the same amount of money in the U.S. versus Canada, the United States sees personal income tax that doesn’t reach its highest levels until someone earns around $500,000-$600,000.

In Canada, the highest rate kicks in much earlier, creating a much bigger tax burden on high-income earners.

Canada also taxes households on an individual, rather than family, basis. This stands in contrast to other countries like the U.S., where tax rates can vary based on combined family income, potentially offering more favorable conditions to some families than others.

Understanding Alternative Minimum Tax (amt)

The Alternative Minimum Tax (AMT) is a system intended to ensure that high-income Canadians pay a minimum amount of tax regardless of what deductions or credits they might claim. In 2024, the AMT system underwent significant changes.

The rate increased from 15% to 20.5%, and while the exemption amount increased, the pool of income subject to AMT also grew.

More individuals are now required to add back various deductions and credits when calculating their AMT liability. These adjustments disproportionately affect those who receive significant capital gains or donate large sums to charity.

Charitable donations were once favored in the tax code, but those making hefty contributions may now find themselves subject to AMT, potentially derailing the motivation for philanthropy among ultra-high-net-worth individuals.

Notes Stenner, “The new AMT rules could discourage donations, making an already complex system even more problematic for wealthy individuals looking to reduce their tax burden.”

The Need For Comprehensive Tax Reform

One of the biggest challenges facing Canada’s tax system is its complexity and outdated structure. Major tax reforms haven’t taken place since 1972, despite the significant shifts in the economy and the growing mobility of capital and labor.

Comprehensive tax reform could help address the many imbalances, particularly for high-income earners, but the political will for such reform seems absent.

“Many of the country’s top minds advocate for a comprehensive review, one that could modernize the system and make Canada a more attractive place for ultra-high-net-worth individuals, entrepreneurs, and corporations. Whether this happens, and when, remains to be seen,” says Stenner.

Looking Ahead To The Impact Of High Tax Rates

The tax landscape in Canada is one of the many factors shaping the financial decisions of the country’s wealthy. With rising taxes, complex compliance systems, and increased regulations, it’s no wonder the wealthy are considering other options.

Real reform would require a multi-faceted approach, tackling everything from personal income tax to corporate taxes and even national debt.

Politically, changes might be necessary to enact reform. But with no significant reform initiative on the horizon, it seems Canada may continue to lose its top talent and its tax base to jurisdictions offering a better deal.

For Canada, the time for introspection is now. Without a serious shift in tax policy, the country runs the risk of pushing away those who could most contribute to its future success.

Thane Stenner, renowned for his experience in wealth management, has an impressive academic background that includes graduating with honors from Arizona State University and participating in Harvard Business School’s Executive Program.

He is cross-border licensed with FINRA in the USA, and with CIRO in Canada, with clients based in San Francisco and the Bay Area as well as across Canada.

His professional journey has spanned several high-ranking positions at Morgan Stanley Wealth Management, including Managing Director and International Client Wealth Advisor, where he spearheaded portfolio management for ultra-high net worth clients.

Stenner’s insights have been featured in multiple prestigious outlets like the Globe & Mail, Canadian Family Offices, and BNN Bloomberg.

Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.