Key Takeaways from the '2018 Federal Budget' | Counting Cloud - CPA Professional Corporation

Key Takeaways from the ‘2018 Federal Budget’

//Key Takeaways from the ‘2018 Federal Budget’
Key Takeaways from the ‘2018 Federal Budget’
Mar 11, 2018

In late February, the Liberal-mandated Parliament passed the budget for FY 2018, entitled Growth and Equality. It features some notable changes from last year, both in content and tone. The Budget puts focus on gender equality, provides greater benefits for lower-income households, and seeks to advance the quality of life among other historically disenfranchised groups, such as indigenous Canadians. To pay for this, it seeks to close up tax loopholes and raise taxes, ostensibly on the wealthiest individuals and companies. The budget is projected to slightly reduce the government’s deficit, and these projects assume roughly 2% annual GDP growth in the coming years.

Equality: A Major Objective

The word “gender” shows up roughly 360 times in the 2018 Budget, establishing the issue of gender equality, especially with regard to the professional sphere, as a central theme of the bill. Various initiatives will be put in place to incentivize family leave for both men and women, with the aim of having both parents share more equally the burden of early childcare. There are also measures in place to close the gender pay gap, which currently stands at roughly $0.88 for every dollar a man earns, and to encourage female workforce participation and entrepreneurship. The budget also includes over a hundred million dollars, earmarked over five years, to address issues such as gender-based violence, sexual harassment and domestic abuse.

The bill is not only focused on equality among genders. The protection and advancement of indigenous Canadians was a major theme of the bill as well. The Budget has earmarked funds for the advancement of indigenous peoples, including income and education equality, and addressing endemic issues such as the rate of indigenous orphanage and the disproportionate incidence of certain health problems.

Canada Workers Benefit

In keeping with the spirit of equally shared growth, the new Budget has introduced the Canada Workers Benefit (CWB), the successor program to the Working Income Tax Benefit (WITB). The new plan increases the maximum salary eligible for the benefits, and increases the benefit itself as well. The CWB, like the WITB, will function as a negative tax on income earned between roughly $3,000 and $16,000, resulting in a maximum award of over $2,300 for families. The benefits will now be automatically awarded to eligible households, rather than having to apply for them.

Tax Changes and You

The 2018 Budget features some changes to the corporate tax rate, specifically corporations earning more than $50,000 per year on passive investments. These corporations will gradually be disqualified from claiming the small business tax rate on passive earnings in excess of this amount. According to the architects of the bill, the change targets only the wealthiest 5% of private companies, and will not affect most small businesses.

The government will also be moving forward with the previously proposed Tax on Split Income (TOSI). Owners of businesses often share company earnings among their loved ones, in order to enjoy more favorable tax brackets. Previously, there were no additional tax consequences to sharing this income with adults over 18 years of age. Under the new legislation, this will prove more challenging, and generally more of this “sprinkled income” will be taxed. Earnings spread out among loved ones, regardless of age, will be taxed at a higher rate. This rule will apply to those who passively enjoy dividends or income from a company without substantially working for that company.

Moving towards a Balanced Budget

Canada continues to lower its annual deficit, with the figure projected to shrink further in the coming years. As a result, Canada will borrow 20% less in 2018. Some were critical of the Liberals’ decision to refrain from slashing corporate taxes a la United States, although this decision prevents the deficit growth that our neighbor will see in the coming years.

In its deficit projections, the government also has factored in lost tariff revenue due to the TransPacific Partnership agreement, a free trade agreement with several Pacific nations, including Japan, Mexico, and Australia. The United States was a major backer of the agreement until its withdrawal under the Trump Administration. Should the agreement go through, Canada will enjoy a more free export market among these nations, but will also lose tariff revenue as these trade barriers come down.

There is a great deal of speculation involved in deficit projections, especially over the long-term, but the Liberals maintain that Canada will achieve a budget surplus by mid-century. Inherent in this projection is a 2% average GDP growth rate for the next few years, and the movement toward greater income equality among demographic groups, including indigenous Canadians, women, and working class households. These projections could naturally be derailed by another recession, or the deficit could close faster under more favorable economic conditions.

In Conclusion…

The Liberals’ 2018 Budget features some notable deviations from last year’s, and puts a much greater emphasis on social, economic, and gender equality. The Budget introduces new programs to foster economic mobility. To pay for this, it targets historical tax havens and casts a wider “tax net”. Ultimately, the bill should achieve a continued reduction in the deficit, which is an encouraging trend that we hope to see continue.