October 25, 2019
2020 Taxes Impacted by Elections
Now that the Federal election has passed and a Liberal Minority government has arisen the impact on tax policy is now uncertain. Depending on which issues the government can get agreement on from the other parties will depend on
what the tax policy becomes in the next budget. So firstly, the Liberal platform needs to be looked at to see what they want to do from a tax perspective. Then any common ground by the other parties to see what direction tax policy goes in the next 24 months.
The Liberal policies are
Personal Tax Exemption
The Personal Tax Exemption amount is currently $12,069 in 2019 and rises annually with inflation. The Liberals have promised to increase it by 15% over four years. “By 2023, it will reach $15,000,”
The increase isn’t universal. “It will not apply for those individuals who are described as being Canada’s wealthiest 1%,” The amount will be reduced for those earning more than $147,667 — those in the second-highest federal tax bracket — and completely eliminated for those in the top bracket, which is $210,371 in 2019.
The Liberals also promised to boost Old Age Security (OAS) by 10% for seniors over age 75 who earn less than $77,580, and to raise the Canada Pension Plan (CPP) survivor’s benefits by 25%.
The change to OAS could mean an increase of $729 a year, according to the Liberals’ platform. “It will start in July 2020
With CPP, a spouse or common-law partner currently receives about 60% of what their deceased spouse or common-law partner received in benefits, she says. The promised increase could mean an additional $2,080 per year.
Parents have been promised that their maternity and parental benefits, received through employment insurance, will be tax-exempt at source, starting in 2020. The result would be about $1,800 more annually for someone receiving EI benefits who earns about $45,000 annually.
Adoptive parents could also see a change in their EI benefits, with the Liberals proposing a 15-week leave — the same length as for maternity leave.
Canda Child Benefit
The tax-free Canada Child Benefit is also slated for an increase for those with kids under one year old. The promise is to boost the benefit by 15%, resulting in an increase of up to $1,000. “Starting in July 2020, the base benefit should be $7,750 for these children,”.
The Liberals proposed to immediately double the tax-free Child Disability Benefit. The benefit applies to families caring for a child with a disability who is under age 18 and eligible for the disability tax credit. The Liberal platform said the increase could result in more than $2,800, to $5,664 annually.
A new vacancy tax would “limit the housing speculation that can drive up home prices,” the Liberal platform said. The residential tax would apply to vacant properties owned by non-resident non-Canadians.
Canada Training Credit
The Canada Training Credit was proposed to start in 2020, to help cover up to half of eligible tuition and fees associated with training. The credit could accumulate a balance up to a lifetime limit of $5,000.
Digital News Subscriptions
The second is a non-refundable 15% credit for eligible digital news subscriptions. The credit is for a limited time, for amounts paid after 2019 and before 2025, and “is a maximum tax credit of $75 annually, to start in 2020,
Stock Options Reduced and Limited
Liberals to iimpose a $200,000 limit on stock options taxed at a preferential rate beginning next year. This will exclude to options granted by Canadian-controlled private corporations (CCPCs). Other corporations, such as start-ups, will need to meet certain conditions in order to not be subject to the limit.
Liberals want to raise the federal minimum wage to $15 per hour. This is supported by the NDP.
Capital Gains Inclusion Rate Currently 50%
The Liberals did not address the capital gains rate in their election platform.
Student Loan Interest
Liberals propose making student loans interest-free for two years after graduation and promise graduates won’t have to pay until they earn over $35,000 annually
The Liberal platform contains this and is proposing taxing at the point of sale purchases of personal automobiles, boats and aircraft valued at $100,000 or more: the Liberals at 10%, the NDP at 12%. The Liberal plan would bring in an estimated $585 million in 2020-21; the NDP’s tax would generate $668 million.
Now onto the NDP Party
New Democratic Party (NDP) leader Jagmeet Singh listed the party’s “super wealth tax” among six priorities he would fight for in supporting a minority government. His plan would see rich families taxed 1% annually on wealth exceeding $20 million. The Green Party is proposing the same tax.
An NDP spokesperson said the tax would apply to households, rather than individuals, in order to prevent wealth being spread among family members to avoid the tax.
“All assets and liabilities will be included in the tax base, including real estate, luxury items [and] investments (including closely held stock), with the exception of lottery winnings,” the spokesperson said in an email.
The policy is 1% tax on wealth over $20,000,000 annually. The interesting stat is that fewer than 100 families in Canada have a net worth over $1 billion.
Concern raised on this policy is how to enforce and collect. The NDP response was the Canada Revenue Agency (CRA) would be able to determine whether a person’s wealth exceeds $20 million, Singh pointed to publicly available information and said the tax would “require self-reporting.” “We would use all the tools available that our CRA has to ensure that those who have wealth of over $20 million pay 1% on their wealth over $20 million,” he said. Also, The NDP spokesperson said the party’s proposal would include “penalties for taking assets out of the country to avoid the tax.”
However, this tax has been declining in use as per the Organization for Economic Co-operation and Development (OECD) — counties using this from of taxation declined from 12 in 1990 to 4 in 2017. Governments repealed the taxes due to administrative concerns, and because the taxes failed to redistribute wealth and generate revenue. Also, in my view, this tax would have capital move out of Canada faster that can be replaced into Canada and a potential decline to our currency could result.
No Stock Options
The NDP platform was “a little bit more aggressive,” proposing to eliminate all employee stock option deductions rather than those above the threshold in the Liberal proposal.
Capital Gain Inclusion Rate 75%
The NDP indicated it would raise the capital gains inclusion rate to 75% if were to form government. The Green Party wanted to raise the inclusion rate to 100%.
Free Tuition Fees
The NDP’s goal is to work towards free university and college tuition.
Now onto the Conservative Party
Remove Carbon Tax within 100 days. Since all the other parties want it in place this will not change.
Child Tax Benefit
The Conservative party has pledged to maintain Liberal initiatives with the Canada Child Benefit and increase social transfer payments by at least three per cent every year.
EI Maternity Benefit
Promised to make Employment Insurance benefits for new parents tax-free.
Conservatives have promised a boost to the Registered Education Savings Plan (RESP) that would raise contributions from 20 per cent to 30 per cent for every dollar invested up to $2,500 a year, to a maximum of $750 a year
Age Tax Credit
Promised to increase the Age Tax Credit by $1,000, available to seniors making less than $87,750. It also promises to keep old age security at 65
To conclude, it will be looking at similarities to see what goes forward and is able to be passed. Times will be interesting in the next two years and stay tuned.