UPDATED: Tax changes are likely with the new minority government
The very brief federal election campaign that few Canadians wanted is now over. We know which party will form the next government and which ones will provide the support that the victorious Liberals need to govern. It was no surprise that neither the Liberals nor the Conservatives garnered enough seats to win a majority. Now that we have certainty around which leader will continue to occupy 24 Sussex, entrepreneurs need to understand that significant tax changes are a near certainty—just as an extension of COVID-19 relief programs is also a very strong likelihood (at least in some form).
Because despite the long-term fiscal implications, record deficit spending to buttress the economy is here to stay, heaving more onto an already mountainous federal debt pile. Not that the major political parties seem to mind. None planned to eliminate budget deficits in the near term. Only the Conservative platform mentioned balancing the budget, but not until 2031—light years away in fiscal terms.
Instead, the parties mostly planned to continue spending, both on additional COVID-19-related benefits as the economy recovers and, in the case of the left-leaning parties, initiatives such as national childcare or pharmacare programs.
Hiking taxes and enhancing enforcement
On the tax front, the New Democratic Party had promised significant increases for some high-income earners. Among other measures, they proposed a wealth tax set at one per cent on every dollar of wealth over $10 million for high net-worth families (the Green Party would have done the same, but only on families worth more than $20 million). The NDP also planned to boost the top marginal income tax rate to 35 per cent from 33 per cent, while increasing the capital gains inclusion rate to 75 per cent from 50 per cent.
Measures such as these are mostly non-starters with the Liberals, but if the NDP become powerbrokers in a minority government, some elements of the NDP’s tax promises could see the light of day.
For their part, neither the Liberals or Conservatives promised anything as drastic on the tax reform front. However, Trudeau’s Grits intend to implement a new minimum tax rate of at least 15 per cent on the highest income earners, a move that could directly impact many business owners who use deductions or tax credits to reduce their tax burden. The Tories wouldn’t have changed tax rates on individuals or small businesses, but they would have boosted Canada Revenue Agency funding by $750 million annually to crack down on Canadians using aggressive tax avoidance measures. The Liberals plan to spend $1 billion annually to achieve the same goal.
The fact that a tightening of CRA enforcement rarely delivers the financial windfall that governments expect (and desperately need nowadays) doesn’t seem to matter. Both the Liberals and Conservatives were determined to funnel more funding to our national tax collectors, which means that we can expect to see more of the kind of overly-aggressive enforcement measures that have created unnecessary tension between the CRA and the business community in recent years.
Corporate taxes could be on the rise, as well
On the corporate tax side, the Liberals intend to increase the levy on bank and insurance company earnings that exceed $1 billion a year—to 18 per cent from the current 15 per cent. The NDP would have taken it a step further, raising the corporate tax rate for all businesses to 18 per cent from 15 per cent. They would have also implemented a temporary surtax of 15 per cent on what they deemed ‘excess profits’ earned by Canadian corporations during the pandemic. Again, the Conservatives would have left the existing corporate tax rate untouched.
The major parties had all promised to make changes to various tax credits, an area where the Conservatives would have focused the lions’ share of their tax policy-related attention. Their platform promised to double the Canada Workers Benefit, while providing additional credits in a range of areas from mental-health benefits and seniors’ care to an expansion of the Canada Child Benefit. The Tories would have extended credits for some small business investments—including a 5 per cent tax credit on capital investments in 2022/23, with $25,000 refundable for SMEs —and would have extended the deferral of capital gains taxes on residential rental properties. They also pledged to deliver a 25 per cent tax credit on individual investments in small businesses of up to $100,000 over the next two years. The Liberals are promising to boost or introduce a range of boutique tax credits, as well.
Lastly, just in time for Christmas, Erin O’Toole’s party planned to suspend the GST in December on any purchases made in-store, presumably to boost traffic to shopping malls and high streets this holiday season.
Promises to support small to medium-sized businesses
As noted above, pandemic spending and supports for small business are sure to continue in some form into 2022. The Conservatives promised to introduce a plan that would pay up to 50 per cent of the salary of newly-hired employees in the six months following the expiry of the Canada Emergency Wage Subsidy. They also proposed a 50 per cent rebate on dine-in meals at restaurants from Monday to Wednesday over a one-month period (similar to a policy introduced in the U.K. to support the struggling service industry at the height of the pandemic).
The Liberals are planning to continue offering wage and rent subsidies to the hard-hit tourism sector, while extending the Canada Recovery Hiring Program and implementing their plan to cap credit card fees paid by merchants. The NDP’s plan, on the other hand, was to indefinitely extend wage and rent subsidies for SMEs until the end of social-distancing restrictions (the Greens are promising the same), while also covering the employer portion of EI and CPP premiums on newly-hired employees throughout the pandemic. The Greens would have invested in green start-ups with a new $1 billion venture capital fund. Their poor election showing and leadership turmoil means they’ll have little influence in a minority parliament.
With inflation on the rise, industries still reeling from COVID-19 restrictions, and labour shortages and supply chain disruption causing havoc in some sectors, business owners can be forgiven for focusing their energy on keeping their organizations afloat rather than concerning themselves with the minutiae of platform promises that may never see the light of day.
But changes are almost certainly coming that could impact their bottom-line. At this point, it’s only a matter of degree and timing.
Armando Iannuzzi, Co-Managing Partner