The federal government’s Fall Economic Statement 2020 delivered few surprises. As expected, it did not provide a clear fiscal anchor for the year ahead. Nor was there a plan to return to fiscal balance in the near future. Ottawa hasn’t delivered a formal budget since March, 2019, well before the coronavirus pandemic sent the country’s finances into a precipitous tailspin and the government began posting record deficits. What is clear is that the current high-debt approach will remain a fixture of federal fiscal policy for the foreseeable future.
Indeed, Finance Minister Chrystia Freeland on Monday predicted an eye-watering deficit of $381.6 billion by April, 2021, along with deficits of $121.2 billion for 2021-22 and $50.7 billion for 2022-23. And those are merely estimates—a predictably difficult COVID-19 winter with more lockdowns could cause greater economic disruption that would likely push the treasury deeper into the red.
Undeterred, the federal Liberals are promising a $100 billion stimulus program over three years, to be launched after the pandemic situation stabilizes and a vaccine becomes available. The stimulus package will focus on greening the economy and promoting innovation. Details are still to come, but additional funding for initiatives such as long-term care ($1 billion is already being committed in this fiscal update) and combatting climate change are likely to follow.
While not a complete budget, the Fall Economic Statement 2020 does offer insight into the Trudeau government’s near-term priorities. Relying on pent up, post-pandemic demand seems to be the government’s strategy to grow its way out of deficit. Whether the plan works remains to be seen.
Notwithstanding much speculation, there was no mention of any changes to personal or corporate income tax rates, capital gains inclusion rates, increased GST rates, or the introduction of a wealth tax. Instead, the government appears to be taking a more targeted approach by launching consultations in the coming months in order to modernize various tax anti-avoidance rules, including the General Anti-Avoidance Rule (GAAR).
Having said that, we will have to wait and see what the next budget brings in terms of increased tax rates, or the roll back of other tax measures that otherwise benefit entrepreneurs, in an effort to help pay for these record deficits and the country’s ever-increasing debt.
Highlights of the Fall Economic Statement 2020 for businesses and individuals include:
- An increase of the combined base and top-up wage subsidy rates under the Canada Emergency Wage Subsidy, to 75 per cent from 65 per cent, for the eleventh to thirteenth qualifying periods from December 20, 2020 to January 16, 2021, from January 17, 2021 to February 13, 2021 and from February 14, 2021 to March 13, 2021, respectively. The maximum base subsidy would remain at 40 per cent and the maximum top-up wage subsidy rate would increase to 35 per cent
- An extension of the current Canada Emergency Rent Subsidy rate structure until March 13th, 2021
- An extension of the Lockdown Support program’s current 25 per cent rate until March 13th, 2021
- Applying GST/HST to: digital services sold by foreign-based vendors such as Amazon, Netflix and Apple; to the sales of goods sold digitally and that pass through Canadian fulfillment warehouses; and to any platform-based short-term rental accommodation supplied in Canada, such as AirBnB rentals. The change would take effect on July 1st, 2021
- Clarity on planned changes to employee stock option tax rules designed to limit the “benefit of the employee stock option deduction for high-income individuals employed at large, long-established, mature firms.” Under the proposed changes, a $200,000 annual limit would be placed on employee stock option grants that can qualify for the employee stock option deduction, based on the fair market value of the shares. Stock options offered by Canadian-controlled private corporations, as well as non-CCPC employers with gross revenue of $500 million or less, would be exempt from the limit. The new rules would apply to employee stock options granted on or after July 1st, 2021
- A simplified home office tax deduction process for employees required to work from home this year due to COVID-19. Individuals would be permitted to claim home office expenses of up to $400 without filing detailed expense reports. CRA will not request a T2200 form signed by their employer to confirm the employee’s remote-work status
- A new tax on unproductive investment properties owned by non-resident, non-Canadian citizens for the coming year. Details are still to be determined
- An additional investment of $606 million for tax compliance measures over five years starting in 2021-22, including the hiring of more CRA auditors and more audits targeting international tax evasion and aggressive tax planning
- Additional support for families with young children, including four payments of $300 per child under age six for families entitled to the Canada Child Benefit with family net income equal to or less than $120,000, and $150 per child under the age of six to families entitled to the CCB with family net income above $120,000
- Ending the limitation on the amount of time that a Registered Disability Savings Plan can remain open in the event that a beneficiary is no longer eligible for the disability tax credit
- Exempting sales of certain face masks/shields from the GST/HST
- A new Home Energy Retrofit program that will allow Canadians to apply for grants of up to $5,000 to fund home energy efficiency improvements
For more information on the Fall Economic Statement 2020 or various COVID-19 relief measures, contact a member of our team.
Armando Iannuzzi, Co-Managing Partner