The Great Wealth Transfer

The Great Wealth Transfer is on the horizon, promising to shift an astonishing $1 trillion from baby boomers to their heirs in the coming years. However, many older Canadians are choosing to take proactive measures, gifting sizable amounts to their adult children before they pass away.

Financial Assistance for Homeownership

Jamie Golombek, managing director of tax and estate planning at Canadian Imperial Bank of Commerce (CIBC) Private Wealth, highlighted a significant trend where boomers assist their kids financially, especially in purchasing their first homes. In major cities like Toronto and Vancouver, skyrocketing home prices have rendered homeownership nearly impossible for many young Canadians.

“The market has become completely unaffordable,” Golombek stated. “It's incredibly challenging for the average person to scrape together even a down payment without significant parental help.” A CIBC June report revealed that the proportion of first-time homebuyers receiving financial aid from family rose to 31% from just 20% in 2015, with the average gift hovering around $115,000.

Tax Implications and Financial Strategy

Wealthy parents, having assessed their financial health, often decide to transfer assets they no longer require. This strategy not only alleviates the financial burden on their children but also serves as a tax-efficient solution. Since there is no gift tax in Canada, parents can gift money without tax implications, although withdrawals from registered retirement savings accounts to make these gifts are taxable.

The Psychological Aspect of Wealth Transfer

Moreover, Amanda McKenna, an associate portfolio manager, observes a psychological aspect of this wealth transfer: older Canadians want to see the benefits of their gifts while they are still alive. “As people are living longer, many parents wish to support their children when they can truly utilize that assistance,” she explained.

Generational Inequality

This situation is not without its drawbacks. Paul Kershaw, a policy professor at the University of British Columbia and founder of Generation Squeeze, noted that not all seniors possess substantial wealth. Many lack homeownership or significant assets, meaning their children could miss out on the advantages offered by their more fortunate peers. Recent Statistics Canada data revealed that individuals born in the 1990s with parents who owned homes were twice as likely to become homeowners themselves.

Calls for Systemic Change

This disparity raises critical concerns about generational inequality. Some analysts warn that Gen Z and millennials without homes may face economic challenges in their retirement, while those who do own property often feel the pressure of rising home values, perpetuating the cycle of unaffordability.

Kershaw argues that urgent systemic change is necessary to address these issues, suggesting that millennials and Gen Z must advocate for an end to rising home prices to enable affordability for all. “We need to disrupt the trend of escalating home values to restore balance,” Kershaw emphasized.

Federal Spending and Future Generations

Moreover, Kershaw raised alarms about the disproportionate allocation of federal spending towards older Canadians. He highlighted that by 2028-29, the cost of the Old Age Security (OAS) program is expected to hit nearly $100 billion, overshadowing spending on youth-focused benefits.

Proposals for Reform

To combat these inequalities, Kershaw proposed a shift in federal spending towards investments in housing, childcare, and education, alongside the introduction of a progressive property tax system to ensure wealthier homeowners contribute their fair share.

Conclusion

As the $1 trillion wealth transfer approaches, younger Canadians are left grappling with a system that favors the older generation, raising questions about the future of equity and homeownership in Canada. Is it time for some fundamental reforms to ensure fairness for all?