Feds tighten tax rules for small businesses and passive income in budget

By Craig Wong

THE CANADIAN PRESS

OTTAWA _ The Liberal government moved to tighten the tax rules for small businesses in the federal budget Tuesday as it fine tuned the changes that prompted an uproar last year.

However, Finance Minister Bill Morneau still faces the challenge of corporate tax cuts in the U.S. that have prompted worries that companies will choose to invest there instead of Canada.

In the budget, Morneau opted to hold the line on corporate taxes in Canada, choosing to help businesses in other ways, including with spending to help women-led businesses grow, innovation and diversification of trade.

“We know businesses are concerned about the outcome of North American Free Trade Agreement talks and tax changes in the United States,” he said.

“We will be vigilant in making sure Canada remains the best place to invest, create jobs and do business and we will do this in a responsible and careful way, letting evidence, and not emotion, guide our decisions.”

The minister faced a backlash over his initial plans to change small business taxes last year before backing down on some of the proposed changes and reviving a promise to reduce the small business tax rate.

The government had pitched the changes as a way to prevent wealthy Canadians from gaining an unfair advantage and paying less tax, but small businesses said the changes hurt the middle class.

In the budget this year, Ottawa moved to gradually eliminate the amount eligible for the preferential small business rate as the amount of passive income rises above $50,000 with the small business deduction limit reduced to zero at $150,000. It also moved to limit the advantages that some businesses can obtain when they pay certain dividends.

The changes, which will apply starting with tax years that begin in 2019, are expected to bring in $925 million a year by the 2022-23 fiscal year.

“We are changing the rules for three per cent of private corporations, because the wealthiest Canadians should not be able to use private corporations to pay less tax than the middle class,” Morneau said.

Bruce Ball, vice-president of tax for CPA Canada, said he was happy that the passive income change was a simpler solution compared with other options.

“At the same time though we still believe that they should look at taxation of passive income along with a number of other changes as part of a more general tax review,” he said.

To help crack down on tax cheats, the government will spend $90.6 million over five years to address additional cases that have been identified both domestically and internationally.

Ottawa is also moving to improve the tax rules to prevent what it said was typically Canadian banks and other financial institutions from gaining a tax advantage by creating artificial losses through sophisticated financial instruments. The move is expected to generate roughly $2.5 billion for the government over five years.

It said it would also clarify the application of certain rules for limited partnerships to prevent unintended tax advantages.

The Canadian Chamber of Commerce said the budget included many positive measures, but noted it didn’t address some of the key issues facing the economy.

“The U.S. is engaged in the most massive tax and regulatory changes in our lifetimes. And what they’re doing is making it more attractive for people to do business in the United States. If we’re going to compete, we have to respond in Canada and unfortunately the budget didn’t respond to the that,” said Perrin Beatty, the chamber’s chief executive.

“Their priorities are on spending programs as opposed to programs that encourage growth.”

Dennis Darby, chief executive of Canadian Manufacturers and Exporters, also said more is needed to be done to help Canadian competitiveness.

“Canada is not attracting enough investment. As a result, innovation, growth and productivity are suffering,” Darby said.

While the minister left the corporate tax rate unchanged, the government spending plan did include cash on several fronts to help Canadian businesses and further its key priorities including supporting women in the workforce.

The government said it will make $1.4 billion available over three years in new financing for women entrepreneurs through the Business Development Bank as well as $250 million over three years through Export Development Canada for financing and insurance for women-owned and women-led businesses.

The budget also included $105 million over five years to regional development agencies to support investment in businesses led by women and $10 million over five years to connect women with expanded export services.

To help Global Affairs Canada boost diplomatic and trade support in Asia, the budget includes up to $75 million over five years starting in 2018-19 with $11.8 million per year. The money will include boosting the number of diplomats and trade commissioners in China as well as moves to promote trade with China and other Asian markets.

The government will also provide $191 million over five years to Global Affairs Canada and Natural Resources Canada to support softwood lumber jobs through litigation under the World Trade Organization and the NAFTA dispute settlement mechanisms.

Federal analysis outlines how extra EI benefit program topped $1.92 billion

A Liberal program to give extra employment insurance benefits to workers in regions hit hard by a drop in natural resource prices will end up costing almost $2 billion _ more than double original estimates.

The government budgeted $827.4 million for the extra payments.

The latest department estimates show the measure will end up costing $1.92 billion, largely the result of changes that allowed more workers to receive extra payments and unemployment rates that stayed higher for longer than the government anticipated.

Further details will come out later this year when the government releases its annual report on the EI system.

The extended benefit program rolled out in 2016 for workers in 12 regions that had seen a sharp and sustained drop in employment as a result of a downturn in energy prices.

Most workers were given an extra five weeks of benefits, while long-tenured workers received an extra 20 weeks.

By July, weekly data revealed that payments had exceeded $1.3 billion and department officials warned Social Development Minister Jean-Yves Duclos in a preliminary assessment that costs were likely to top $1.9 billion.

The assessment obtained by The Canadian Press under the Access to Information Act says costs went up due to the addition of three regions to the program and making payments retroactive to January 2015, which gave workers who had already exhausted benefits an extra couple of weeks of payments.

This was particularly true for long-tenured workers. The department says these workers account for $1.7 billion in payments, despite being only 28 per cent of all recipients of the extra benefits.

The assessment noted about one-quarter of EI claimants usually use up benefits before going back to work, but almost half of workers exhausted their benefits under the Liberal program.

Employment and Social Development Canada said the unemployment rates in those regions also stayed higher for longer than officials expected, increasing “the number of claims and their likelihood of taking advantage of the EI extended benefits.”

The combined result of policy decisions and economic conditions was that 412,000 people qualified for extra benefits, instead of the 235,000 federal officials originally estimated would use the program.

“They failed to estimate just how hard it was going to be for people to get work,” said Frances Woolley, an economics professor at Carleton University in Ottawa.

“I’m kind of surprised that mistake was made.”

Parisa Mahboubi, a senior policy analyst from the C.D. Howe Institute, said extended high unemployment rates would have made it difficult for workers to find jobs, leaving them to stay on the program longer than anticipated.

She said the extended benefits could have also reduced incentives for workers to find new employment.

Woolley said the policy itself appears to have been helpful for workers in need, even though it went well over budget.

New report proposes national pooled longevity insurance program

Since Canadians rely on a patchwork of incomes to fund their retirement, the worry by many of running out of money is a real possibility.

A new report from the C.D. Howe Institute proposes a pooled risk savings program that could provide more security for retirees of advanced age. “Retirement will span beyond age 85 for more than half of 65-year-old Canadians,” wrote Bonnie-Jeanne MacDonald, senior research fellow at the National Institute on Ageing at Ryerson University and resident scholar at Eckler Ltd., in the report.

“Retiring Canadians want to protect their later years. We need innovative solutions now — ones that add definitive value but place no new pressures on the Canadian public purse.”

Annuities don’t always appeal to seniors, as they prefer to maintain control over their savings, the report suggested. Instead, longevity insurance could replace annuities as an income stream. However, the tax environment in Canada doesn’t favour private market longevity risk products, according to the report.

As such, MacDonald recommends a voluntary, national program — dubbed Living Income for the Elderly (LIFE) — that would allow retiring Canadians to buy into a pooled fund that would begin to provide steady income at age 85. At their discretion, Canadians would begin to allocate money to the fund at age 65, she suggests, and proportional monthly payouts would start at 85. They wouldn’t be able to make commuted-value cash withdrawals during the deferral period or the payout stage.

Those who live longer would benefit from additional security as the fund would distribute the investments of deceased participants equally among the remaining members. The so-called mortality premium would allow lump-sum bonus payouts as members age.

During the accumulation period, a members’ account in the fund would allocate investments in a relatively aggressive manner, the report noted. Upon reaching 85, the investments would revert to a more conservative portfolio designed to provide a stable, monthly payout. And the retirees wouldn’t have any investment decisions to make as a government institution would manage the fund’s capital, says MacDonald.

She stresses that the government, in addition to administering the fund, would need to address some of the proposal’s unfavourable tax implications.

Overall, the concept would increase stability for seniors living longer without putting added pressure on Canadians as a whole, says MacDonald. “LIFE will encourage retiring Canadians to proactively prepare for advanced ages while allowing them to maintain control of the vast majority of their financial savings,” she said in the release.

“The program will benefit not just Canada’s elderly population, but Canadians on the whole.”

Illegal ride hailing underway in B.C. while government reconsiders laws

By Linda Givetash

THE CANADIAN PRESS

VANCOUVER _ As the British Columbia government explores the impact of allowing ride-hailing services like Uber and Lyft, a number of companies have already been operating illegally in the province.

The Passenger Transportation Branch said at least seven app platforms are known to be in use by drivers and consumers in Metro Vancouver.

An advisory issued by the branch last fall said the drivers, not the app developers, are assuming the risks of running an unlicensed commercial transit service and face fines of $1,150.

Branch director Kristin Vanderkuip told an all-party legislature committee meeting in Vancouver on Monday that $12,650 in fines have been issued to illegal drivers to date. Some of the services have been found in the Victoria area as well, she said.

The branch is trying to educate consumers about the risks of using unlicensed ride-hailing services, she said.

Ted Townsend, communications director for the City of Richmond, said Tuesday it’s difficult to tell how many drivers or services are involved and their exact location because they’re organized online and transcend city boundaries.

Municipalities can’t provide business licences to drivers or app providers because there is no legal framework for them, he said in an interview.

Officials are responding to the issue as they would with any business operating without a licence, he said, but identifying drivers is a challenge.

“It’s difficult to obtain the type of evidence and information that would be required in many cases to take action,” he said. “They’re not bricks-and-mortar type of operations so it’s hard to establish exactly where they’re operating, where they’re based.”

Townsend said a provincial framework around ride-hailing businesses, which the government is exploring through hearings this week, will help cities do their part in licensing or prohibiting services.

In the meantime, he said Richmond is working with the Transportation Ministry and neighbouring cities to crack down on illegal ride-hailing.

The ministry said it has received complaints about the unlicensed companies and has several ongoing investigations.

The Passenger Transportation Branch has issued more than 20 cease and desist orders to vehicle owners across the province, it said.

The ministry warned drivers and consumers about the risks associated with the companies.

“The driver is subject to all penalties for operating illegally on the road the driver is subject to all penalties for operating illegally on the road _ and they are subject to fines of $1,150, as well as further penalties for not disclosing the commercial use of their vehicles to their insurance provider,” it said in an emailed statement.

“Customers need to know that if they choose to get a ride through these apps they are choosing to take a trip in a vehicle that has not been licensed to operate legally and safely in B.C.”

Government of Canada removes processing fee to hire foreign caregivers

When live-in caregiving is more affordable for Canadians who need it most, families can spend less time worrying about finances and more time with their loved ones.

That’s why today, the Honourable Patty Hajdu, Minister of Employment, Workforce Development and Labour, announced the elimination of the Labour Market Impact Assessment (LMIA) processing fee for middle class families seeking to hire foreign caregivers for children, and all families seeking caregivers for individuals requiring assistance due to a physical or mental condition.

Achieving the Minister’s mandate letter commitment to eliminate the $1000 LMIA processing fee for certain families and individuals will support those most in need of financial assistance to meet their family caregiving needs and responsibilities.

Quote

Our government knows that Canadians deserve better access to care for their loved ones. Waiving the LMIA fee will help put care within reach of more Canadian families.
– The Honourable Patty Hajdu, Minister of Employment, Workforce Development and Labour

Quick Facts

  • To provide financial relief to families or individuals seeking to hire foreign caregivers, the Government of Canada is eliminating the $1000 per position LMIA fee for the following two groups:
    • individuals seeking to hire foreign caregivers to provide in-home support for themselves or for another individual (for example, mother, father, brother, sister, son, daughter, friend), who requires assistance due to a physical or mental condition; and
    • families or individuals with less than $150,000 in gross annual household income seeking to hire foreign caregivers to provide childcare in their home to a child or children under 13 years of age.
  • In April 2017, the Government of Canada set a path forward for the Temporary Foreign Worker Program, including fulfilling its commitment to better protect vulnerable foreign workers. This included a commitment to work with community organizations devoted to protecting vulnerable temporary foreign workers to ensure they are informed of their rights and protections when they arrive in Canada.
  • To qualify for the LMIA processing fee exemption for individuals requiring assistance due to a physical or mental condition, a medical certificate from a treating medical practitioner attesting to their condition will be required at the time the application is submitted.

Associated Links

SOURCE Employment and Social Development Canada

N.B. proposes insurance changes to ensure domestic violence victims are covered

New Brunswick is moving to ensure people have insurance coverage if their home is damaged in domestic violence cases.

Finance Minister Cathy Rogers says most home insurance policies exclude payment for loss or damage caused intentionally by anyone insured by the policy.

She says that can hurt spouses if one of them deliberately sets fire or damages the property.

The proposed Insurance Act amendments would prevent insurance companies from using exclusions to deny coverage in such cases and allow victims to receive their share of compensation.

The changes were developed with the Office of the Consumer Advocate for Insurance, the Financial and Consumer Services Commission and the Women’s Equality Branch.

Commission CEO Rick Hancox says the changes would bring New Brunswick in line with several other provinces and reduce the financial loss to people experiencing intimate partner violence.

 

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from ILSTV

You have Successfully Subscribed!

Pin It on Pinterest