April 29, 2016. I took a long, slow, thought-provoking walk from my office on Georgia Street in Vancouver to the Revenue Canada building on Pender Street. I was carrying an envelope containing a cheque payable to the Receiver General for Canada for $1,180,000 that had special meaning to me.

Let me explain…

 

The time had come for my dad, Rankin Hodgins, to pay the Canada Revenue Agency the capital gains tax he had wisely deferred during a 38 year investment journey that saw him turn an initial investment of $200,000 into $8.5 million.

It wasn’t supposed to be this way.

The plan all along was that Dad wouldn’t sell any stock until he passed away, thereby wisely continuing to defer tax on his unrealized capital gains into the future.

His approach of buying high quality companies and holding onto them for decades rather than years had been a hallmark of his investment strategy for more than 35 years. But tax policy is always subject to change so when new governments are elected their approach to taxation normally reflects their philosophical bent.

A new Liberal government in Ottawa introduced a marginal tax hike of 4% for Canadians who earn more than $200,000 per year on January 1, 2016. Alberta, not to be left behind, increased provincial taxes another 4% for this same group. This moved the marginal tax rate for high-income Albertans from 40% to 48%, an increase of some 20%.

Ouch!  How times change… remember when Alberta was considered to be the land of opportunity, free enterprise and “open for business”? Not sure this is the message you want to send to a group of taxpayers that might actually be able to help jumpstart a rather anemic Alberta economy but regardless of what one thinks, this is now the law of the land.

This left our family in a dilemma. We knew that Dad, at age 94, was past normal life expectancy so future planning needed to focus on the short term. We knew that Dad would not be happy paying a tax bill of more than a million dollars. Who would be? But we also knew that if he waited until 2016 or later to pay his tax bill, it would be almost $300,000 higher.

My brother John and I independently worked the numbers forwards and backwards and both of us came to the same conclusion. With a portfolio of about $8.5 million, Dad would need at earn 10% for at least 4 years to cover the nearly $300,000 tax bill he would pay by deferring tax until he passed away.

The logic of the paying his tax bill in 2015 was obvious. It was the emotional side of it that I struggled with.

It felt to me like we were somehow selling out on Dad, betting against how long he was going to live. Dad was relying on us to make the right decision but that’s not what I ended up focusing on.

My mind had already hit the rewind button… and it bought be back to things that had nothing to do with money and everything to do with life.

I thought about all the great moments I’ve experienced with my dad, playing catch with him in the alley behind our house on 105th in Tisdale SK, the excitement I felt the first time coming to visit Mom and Dad in their new home in Claresholm AB, (just south of Calgary)  and of course, spending time with him in his basement office in Lethbridge talking about investments, life and everything in between. He loved these sessions and so did I.

I thought about how hard my dad had worked to scrimp and save to make sure his 5 children had the opportunity to get a university education. I thought of him walking into his local branch of the CIBC in 1978 to get his first investment loan and the fact that I had just delivered a cheque to the government for $1.185 million based on his incredible investment success. Talk about hitting it out of the park!

And finally I thought about what a phenomenal steward he had been of his money. No fancy cars, expensive trips or extravagant lifestyle. My dad knew who he was and didn’t rely on money or material possessions to define himself.

The tax dollars from a lifetime of saving and investing are now in government hands. If they’re able to spend the money as wisely as it was saved, they can achieve great things for all Canadians.

 

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