Finance Canada Report: Tax Revenues Increase, But Red Ink Flows

Year-end tax planning is important in 2016, especially in light of Finance Canada’s release of its Annual Financial Report of the Government of Canada for Fiscal Year 2015–16 on October 7, 2016.

Posting a budgetary deficit of $1.0 billion to March 31, 2016, the report also notes that government revenues were up 4.6%, but expenses increased even more, by 5.7%. Personal taxes were up, too, by 6.7%. In addition, there was a billion-dollar loss at Canada Post, which just settled on a new defined-benefit pension plan.

Here are the stark details, which do not include the new high-income tax bracket, which made its debut in 2016:

• Revenues: Total $295.5 billion, $13.1 billion more than 2014–15, representing an increase of 4.6 per cent, largely reflecting growth in income tax revenues and other taxes and duties.
• Expenses: Total $296.4 billion, $16.0 billion more than 2014–15, an increase of 5.7 per cent, reflecting increases in major transfers to persons and other levels of government and direct program expenses.

• Federal Debt: The accumulated federal debt (the difference between total liabilities and total assets) was $616 billion on March 31, 2016, up $4 billion from the year before. The net debt was $693.8 billion before financial assets were considered.
• Public debt charges were down $1.0 billion, or 3.8 per cent, from the prior year, due to a lower average effective interest rate on the stock of interest-bearing debt.
• Debt to GDP Ratio Federal: The federal debt-to-GDP (gross domestic product) ratio was 31.1 per cent, up slightly from the previous year.
• Debt to GDP Ratio Federal and Provincial: Canada continues to have the lowest total government net debt-to-GDP ratio (26.7%) among the Group of Seven (G7) countries, at less than half the G7 average. Canada’s total government net debt-to-GDP (gross domestic product) ratio includes the net debt of the federal, provincial/territorial and local governments, as well as the net assets held in the Canada Pension Plan and Québec Pension Plan.

As noted, personal income tax revenues increased by $9.2 billion, or 6.7 per cent. But that increase is before the reduction in the middle tax rate and the new 33 per cent tax rate on the highest income earners came into effect in 2016. Therefore, year-end tax planning is more important now, especially for executives and business owners.

Other important economic data indicative of Canada’s challenging economic times:

• Global economic growth slowed in 2015 to its weakest pace since the 2008–09 Great Recession.
• Real GDP growth in Canada declined from 2.5 per cent in 2014 to 1.1 per cent in 2015, also at its slowest pace since the Great Recession.
• Nominal GDP, which is the broadest measure of the tax base, grew by just 0.5 per cent in 2015, the slowest growth since 1981.
• Both real and nominal GDP growth in 2015 were significantly lower than anticipated in Budget 2015.

What can you take from this news? Investment returns will continue to struggle, while taxes increase for high-income earners in 2016. Year-end tax planning takes on an important new focus in these times, especially if there is an opportunity to plan for income levels to stay below the $200,000 high-income bracket.

For a comprehensive update on year-end tax planning in 2016, register now for DAW – the Distinguished Advisor Workshops.

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