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 estimates our population at 37,894,799[1].  That is direct support of $4,030 a person and total support of $24,534 per person.  Based on the number of taxpayers, a different story unfolds.  Based on the 2017 year[2]  with number of taxpayers per income threshold, the costs per taxpayer would be:
8-5-2020-Table.JPG
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 …, according to a leaked report seen by UK daily The Telegraph. The report … 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… [3]

In Finland:
 
“…the Finnish Government published a report … 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…;
  • Environmental taxes, with the taxation of fossil fuels increased further;
  • Value-added tax[4]
While other countries are looking at funding the COVID crisis, so is Canada! 
 
What will this look like?  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 13.8%;
  • Expanded the scope of the tax on split income (kiddie tax);
  • Penalized business owners for investing corporate profits within a corporation;
  • Restricted access to the recovery of refundable taxes;
  • Accelerated the taxation of work in progress of professionals; and
  • Invested of over half a billion dollars to increase audit activity, increasing the cost of compliance for business owners.
 
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 as in the past.  Will competitive and skilled labor emigrate as a result of any 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. 
 
What about the capital gains inclusion rate?  For years now the inclusion rate has been 50%.  There have been rumors this will increase - is now the time?
 
Another proposal is the taxation of the gain on 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 bear the weight to pay for the Pandemic. Now is the time to protect what may be targeted in the next budget.
 
Contributed by Brad Berry CPA, CA, from Mowbrey Gil. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore North America.
 
[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.