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Coming Soon: Taxing the Pandemic
As reported on CBC.ca:
“The federal government’s latest projection of how much it will spend on direct support for Canadians to get through the COVID-19 crisis have risen to more than $152.7 billion as of May 28 … Ottawa estimates that overall total — including measures to protect Canadians health and safety and to provide business and tax liquidity support as well as the direct support for individuals, businesses and sectors — amounts to more than $929.7 billion”.
These numbers are astronomical and makes the cost of the recent SpaceX launch look as cheap as a Yugo.
Statistics Canada has the population of Canada estimated at 37,894,799[1]. Simple math would indicate that for every person in Canada the direct support amounts to $4,030 a person, while the total support amounts to $24,534 per person (ignoring the interest costs, as this will be all borrowed money). What is the cost to the taxpayer? The most recent information from Statistics Canada on number of taxpayers per income threshold paints a very different picture of the cost to the individual taxpayer. Based on the 2017 year[2] with number of taxpayers per income threshold, the cost per taxpayer would be as follows:
| Year – 2017 | # of Taxpayers | Cost per Taxpayer Direct COVID support | Cost per Taxpayer Overall COVID Support |
| If paid only by taxpayers with income over $15K | 22,027,650 | 6,932 | 42,206 |
| If paid only by taxpayers with income over $35K | 13,951,450 | 10,945 | 66,638 |
| If paid only by taxpayers with income over $50K | 9,499,850 | 16,074 | 97,865 |
| If paid only by taxpayers with income over $150K | 851,830 | 179,261 | 1,091,415 |
The other side of this coin is that during the pandemic many businesses have suffered, meaning lower revenue for the public coffers. How will this be paid for?
In the UK it has been reported that:
“…COVID-19 could create a gulf of almost £300 billion (US$367 billion) in the UK’s public finances that will need to be filled with tax and spending measures, according to a leaked report seen by UK daily The Telegraph.
The report, drawn up for the UK Chancellor, Rishi Sunak, reportedly recommends that the Government could look to a multi-year plan to increase taxes that could include a combination of a one to five per cent hike in personal income tax rates, changes to pension tax rules, a value-added tax increase, and a hike in social security contributions, among other measures.
The Telegraph reported that measures could be announced within weeks”[3].
In Finland:
“…the Finnish Government published a report which explores the economic and fiscal consequences of the COVID-19 pandemic for Finland and considers what taxes could be increased to help restore the public finances. … the report identifies certain taxes where there is scope for revenue increases without threatening the economy. These are:
- Property taxes, …;
- Corporate tax, with scope available to reduce the tax advantages of unlisted companies;
- Environmental taxes, with the taxation of fossil fuels increased further;
- Value-added tax, focusing on reduced VAT rates rather than the standard rate”[4].
While other countries are looking at funding the COVID crisis, so is Canada!
What will this look like? No one really knows. Prime Minister Justin Trudeau has already followed in his father’s footsteps by increasing the taxes on the wealthy and creating more tax brackets. Will there be more tax increases for the wealthy? For the business owners? In the current governments’ name of fairness you only need to look at their record where they have:
- Increased the highest personal tax rate from 29% to 33% (13.8% increase);
- Expanded the scope of the tax on split income (kiddie tax) to all family members;
- Penalized business owners for investing corporate profits within a corporation;
- Restricted access to the recovery of refundable taxes paid by corporations;
- Accelerated the taxation of work in progress of professionals; and
- Invested of over half a billion dollars to increase audit activity, thereby increasing the cost of compliance for business owners.
What is wealthy? Time will tell how wealthy is defined by our government as the gap to fill will and should include more than the top 1% of Canadians. Let us hope our competitive and skilled labor do not emigrate as a result of any pending changes; keeping in mind that since 2016 the marginal income tax rate on income of $150,000 would be subject to lower taxes in all US states when compared to all Canadian provinces.
What about the GST? When the Harper government lowered the rate from 7% to 5% the opposition parties were anything but supportive. Now would be the chance to reinstate a higher rate.
Let us not forget about the capital gains inclusion rate. For several years now the inclusion rate has been 50%. There has been rumour that this will increase to 75% – is now the time for an increase?
A more interesting, albeit disconcerting, proposal that has been floated is the taxation of the gain of your principal residence over a certain threshold.
While we do not have a crystal ball to predict what changes are coming, we can predict with confidence that tax changes are coming, and coming soon! The Federal Budget for 2020 was scheduled for March 30, 2020 but has been postponed indefinitely. Why is this being deferred? Are new tax changes being considered for this next budget?
Owner managers of Canadian corporations may be the bearers of the weight as the country pays for the Pandemic. Now is the time to contact us to discuss options to protect what may be targeted in the next budget.
[1] Statistics Canada https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710000901 Table 17-10-0009-01 Population estimates, quarterly
[2] Statistics Canada https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110000801 Table 11-10-0008-01 Tax filers and dependents with income by total income, sex and age
[3] CCH Tax Topics May 26, 2020 Number 2516
[4] Id.
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