In April, the federal government released its first federal budget in two years. Perhaps most notably, the federal government expects to continue its significant spending — over $101 billion for the next three years — to support strong economic recovery in the fight against Covid-19. It extended various emergency benefits, resulting in a record deficit and significantly higher projected debt for the foreseeable future.
Some would argue that the excessive spending has Canada wading into “Modern Monetary Theory” (MMT) waters. MMT suggests that federal government spending shouldn’t be constrained by its revenues, which are largely created through taxation. It suggests that countries that issue their own fiat currency should determine what their requirements are and spend accordingly, not worrying about running larger deficits as long as inflation is under control. Given the pledged spending, it may seem as though Canada is embracing this new way of economic thinking. And we’re not the only ones. Many governments have followed suit, with an estimated US$12 trillion spent globally in just the first 8 months of the pandemic.1
While the future economic consequences are yet to be seen, the injection of significant liquidity into the economy appears to be having inflationary effects. We see increasing commodity prices (lumber prices have more than tripled this year!) and steepening grocery bills, as just some examples. Beyond the spending spree, the budget had no changes to personal or corporate income tax rates. Here is how you may be impacted:*
For Seniors: Extending Benefits — Seniors who are 75 years or older as of June, 2022 will receive a one-time Old Age Security (OAS) payment of $500 by this August. For this same group, monthly OAS payments will be increased by 10 percent beginning in July, 2022. If you aren’t in need of these funds, consider investing them. If you haven’t maxed out contributions, a tax-free savings account is an ideal way to potentially grow funds on a tax-free basis.
For Investors: Green Investing — The budget pledges $8.8 billion over five years to support a greener future, including the issuing of $5 billion of green bonds to finance green projects. The budget suggests that the presence of government-backed bonds may support more mature investors who are “looking for a green portfolio but also need to manage their investment risk.”2 With the rise in support for green investing, if you are interested in incorporating environmental factors into your portfolio, please call the office.
For High-Net-Worth Spenders: A Luxury Tax — If you’re considering the purchase of a luxury vehicle in the near future, you may want to do so by Dec. 31, 2021. As of January 1, 2022, sales of cars and personal aircraft with a retail price of over $100,000, as well as boats priced over $250,000, will incur a new tax. It will be calculated at the lesser of 20 percent of the value above those thresholds, or 10 percent of the full value of the vehicle.
For Business Owners: Accounting for Capital Assets — If you operate a Canadian-controlled private corporation, the business will now be able to purchase up to $1.5 million of certain capital assets and fully expense these in the year they become available for use. This includes eligible assets purchased on or after April 19, 2021 and before 2024. There may be tax benefits achieved by immediately expensing certain assets so please consult a tax professional as it relates to your situation.
For greater detail on the initiatives proposed, see the Government of Canada website: budget.gc.ca/2021/home-accueil-en.html
- theglobeandmail.com/business/article-whatever-we-may-think-of-modern-monetary-theory-its-day-in-the-sun-has/; 2. Budget 2021: A Recovery Plan for Jobs, Growth and Resilience, Government of Canada, page 166. *At the time of writing, the budget proposals had not been passed into law.