Dave Walsh, partner and Tax Service Line Leader for BDO Canada recently sat down with BNN to discuss BDO's perspective on the Federal Budget. When asked for his view on the changes announced for private corporations and the impact on Canadians, he indicated “They are all about making the middle class stronger and making the system more fair. But to be clear, there was no actual change announced. It's more of an announcement of a review that's going to be coming. So perhaps an intention to make a change, so we will have to see more detail as it comes.”
In our live webinar hosted on March 23 which discussed the economic impact of the changes announced in the budget, guest speaker Hendrik Brakel, Chief Economist, Canadian Chamber of Commerce commented “Let us run deficits indefinitely to try and stimulate growth. This is the central political bargain at the heart of the federal government's second budget. For the 2017-18 and 2018-19 fiscal years, deficits of $28.5 billion and $27.4 billion respectively are predicted. The problem? Deficits haven't worked. We've had nine quarters of declining performance and two years of zero export growth. Piling on debt leaves us less room to manoeuvre in case of a major downturn or correction in the housing market.”
Building a stronger middle class
As for the budget's promise to strengthen our middle class? “Not so much,” said Rachel Gervais, partner and GTA Tax Service Line Leader for BDO. “There is no real relief for the middle class from an income tax perspective.” Instead, the budget eliminates the popular public transit tax credit and makes it more expensive to buy alcohol, cigarettes or hail an Uber. Canada's professionals, in particular, have been targeted as the budget eliminates their ability to defer paying tax on work-in-progress.
On the plus side, there was no capital gains rate increase, which had been widely speculated in the media. The budget also made mention of a review of income splitting by private corporation shareholders and the ability to defer taxation and accumulate savings in holding companies, something the finance department believes is unfair. Gervais' advice: “The time is now for private corporations to look at tax strategies before such changes come.”
Read More: Find our full federal budget report here.
Protectionism
Finance Minister Bill Morneau's budget was more of a series of tweaks and updates as Ottawa waits to see what happens in the U.S. and the UK, now that it is poised to trigger Brexit.
“Inaction is not an option for Canadian businesses who have to stay on top of what's happening, adapt and take advantage of opportunities,” said John Wonfor, partner and BDO's Global Head of Tax. “The world for global trade is changing. There is a significant increase in wealth among the middle class in China and India. Canadian businesses should prepare to capitalize on that and the growing global investment those nations are making, which are no longer just inbound economies, but ones that are investing around the world.”
Increasing innovation
Among the themes that emerged throughout the webinar was the fact there was little in the way of details and there were no big, bold ideas, even though the word ‘innovation' appeared more than 250 times throughout the report. Also missing in the budget: any tax incentives to encourage investment in R&D or specifics on how tech entrepreneurs can access the funding promised to companies in last year's budget. “In the 2016 budget, the government announced $800 million to help build high-tech super clusters like Silicon Valley, Toronto-Waterloo corridor and Tel Aviv,” said Harry Chana, partner and BDO's Technology and Life Sciences Tax Lead. “That's increased to $950 million and there are additional funds, but there is no clear path for entrepreneurs to access those funds. The process is still to be determined.”
Accessing skilled talent is another top challenge. To that end, the budget has announced an express entry system to streamline the process of bringing skilled foreign workers into Canada to bridge the talent gap for companies.
Building infrastructure
In terms of infrastructure investment, the 2017 budget picks up where the 2016 budget left off on its 10-year plan to spend $180 billion improving Canada's aging infrastructure. “The vision is to build stronger, more inclusive communities, with internet access for all, improved public transit, health care, roads, rail, ports, parks, museums and childcare spaces,” said Daryl Maduke, partner and BDO's West Group Tax Service Line Leader. “The larger projects will be public private partnerships that will most likely benefit private companies long term. However, the budget is light on specifics as to how, when and where those expenditures will happen.”
To learn more about the budget and how it impacts you, listen to the full webinar. If you have any questions about the Federal Budget and how it may impact your business, please contact your local BDO office.
The information in this publication is current as of March 27, 2017.
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