No overreaching tax break for families as budget targets specific groups

Thestar.com
March 20, 2019
Michael Lewis

While the federal budget failed to deliver income tax relief or to restore Canada’s corporate tax advantage over the United States, at least one Toronto family believes its focus on education and skills training will bolster global competitiveness and bring abiding benefits to the middle class.

“A lot of people say cutting taxes and deficits are important pieces and they are,” said Dan Jacob, a 33-year self-employed tech entrepreneur who lives in Toronto with his wife and young daughter.

Dan Jacob, with his wife Jessica Weisz (left) with daughter Ava Weisz Jacob, 8 months, says the budget’s support for home ownership is great but affordable child care is a more immediate need for young professionals.

“But lifelong learning and investing in skills training are also essential if we are to remain competitive down the road,” Jacob told the Star after the Liberal government on Tuesday delivered its final budget before a federal election in the fall.

Jacob said last fall’s economic statement took a more business focused approach, while the “voter friendly” 2019 budget applies specifically targeted tax measures that address the needs of groups including seniors and first-time home buyers, although he said plans to make child daycare more affordable would have been welcome.

The lack of availability and the cost of child care in Toronto “are really a challenge for working parents,” he said. “Supporting home ownership is great but affordable child care is a more pressing need for young professionals.”

The budget contains provisions that could benefit Canadians broadly but many measures are targeted to specific groups including Indigenous families via $1.2 billion over three years to enhance social services -- and farmers in supply-managed industries affected by new trade agreements.

Students would see a lower interest rate on Canada Student Loans while a limited group of patients would benefit from subsidies starting in 2022 for the costs of drugs for rare diseases.

“It’s more about some very isolated changes based on voter feedback,” said John Oakey, national director of tax services for the Baker Tilly co-operative of independent chartered accounting firms in Canada. “There were no tax reductions corporate or personal. There is no overreaching tax policy.”

C.D. Howe Institute director of research Alexandre Laurin echoed the view, saying the budget includes positive, if highly specific moves. He said many had hoped it would take a comprehensive approach by signalling the need for a review of Canada’s tax competitiveness post U.S. tax reform that put Canada and the U.S. corporate federal/state and provincial corporate tax rates close to an equal footing after the U.S. rate had been far higher.

“I believe that more should be done to restore the type of tax competitiveness we enjoyed before the U.S. reform,” Laurin said.

The budget brought down by Finance Minister Bill Morneau did, however, offer measures that could provide a lift for average families, notably $1.7 billion over five years and $586 million a year thereafter for a Canada Training Benefit to help workers upgrade skills and acquire new ones while keeping their jobs.

The benefit includes a $250-a-year tax credit to pay for training programs and access to employment insurance to cover living expenses for up to four weeks away from work. The budget document says the credit is expected to launch in late 2020 and will apply against the cost of programs at eligible universities, colleges and institutions.

Measures to make housing more affordable are another budget highlight, especially for first-time buyers who will be able to borrow $35,000 from RRSPs (up from $25,000) and have the Canada Mortgage and Housing Corp. contribute a small share of equity for down payments.

Key tax components include a plan that would place a greater hit on stock options for high income earners through a $200,000 annual cap on future stock-option grants that get preferential tax treatment, although startups and rapidly growing businesses would be excluded. Employee stock option benefits are currently taxed at half the normal rate of personal income.

“We will take action to limit the benefit of the stock option deduction for executives of large, long-established corporations -- while ensuring that everyday employees aren’t affected, and that startups and emerging Canadian businesses can continue to grow, attract talent, and create more good jobs,” Morneau said.

Another measure in the budget sets eligibility criteria for media outlets that aim to access new federal tax incentives announced last fall permitting some qualified outlets to receive a 25 per cent refundable tax credit on newsroom salaries and issue a 15 per cent tax credit to digital subscribers. They would also create access to charitable tax incentives for not-for-profit journalism.

Morneau’s budget also includes a one-time $2.2 billion transfer from the federal gas tax fund to cities and towns across the country to address “infrastructure deficits” according to the priorities of municipalities and First Nations communities.