Vancouver, B.C. (October 19, 2000): Finance Minister Paul Martin presented a mini budget containing two important provisions. The first is the reduction of the capital gain inclusion rate from 66 2/3 percent to 50 percent as of October 18 2000. The second is the small business capital gain rollover increase from $500,000 to $2 million. It is worth noting that these are only provisions and changes may occur before they become law.

Adrian Mastracci, president of KCM Wealth Management Inc., an independent, fee-only investment counsel and financial advisory firm in Vancouver says "individuals and small business owners should consider this as an opportunity to review their situation to take full advantage of the provisions."

On the first provision, Mastracci counsels individuals, family trusts and businesses to review their total investment portfolio with the view of calculating all capital gains and capital losses that currently exist under the three different inclusion periods and rates as follows:

1. 75 percent for the period January 1 to February 27, 2000
2. 66 2/3 percent for the period February 28 to October 17, 2000, and
3. 50 percent for the period October 18 to December 31, 2000.

Taxpayers who have gains or losses in two or three periods must use a complex formula to determine the effective inclusion rate for the year 2000 income tax filing. Thereafter, the portfolio should be judged on its suitability to achieve the long-term goals, such as financial independence or retirement, within the stated tolerance for risk and investment time horizon. If the current portfolio is lacking in attaining those goals, it may be time to make changes.

On the second provision, Mastracci counsels small business owners to review their business plan as it relates to the capital gain rollover provision when the share proceeds are reinvested in another eligible business. Owners should asses whether the business qualifies under the Income Tax Act and, if not, implement steps to achieve eligibility.

More important, owners should first review whether their small business (or active farm property) is eligible for the $500,000 capital gain exemption available upon the sale of the shares. This provision exists in the current law and requires the small business or active farm to qualify for a period before the sale of the shares. For owners able to take advantage of the entire $500,000 capital gain exemption, it means that the taxable capital gain of $250,000 (at the 50% inclusion rate) would be exempt from income taxes. The income tax saving varies in each Province, approximating $125,000 at the 50% marginal tax rate.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.