Good News for Employees; Self-Employed, Not So Much

Evelyn Jacks, DFA-Tax Services Specialist, RWM, MFA, MFA-P

Good news on the labor front in Canada:  the unemployment rate dropped to 9.0% in September, down from a high of 13.7% in May.  Further, the September Labour Force Survey released October 9 for the week of September 13 to 19, reported fewer people receiving the Canada Emergency Response Benefit (CERB) , EI or the Canada Emergency Student Benefit (13.5% down from 16.1%) and that the employment rate rose 2.1%.  So, what’s the bad news?   

According to the September Labour Force Survey, the self-employed are having a more difficult time with pandemic recovery. At the start of the pandemic (February to April) the self-employed suffered fewer losses than employed persons at -2.7% compared to -18% for employees. But when total employment rebounded in the period April to September, the number of self-employed workers initially remained flat before declining in August.

Compared to February, self-employment was down 6.0% in September. These folks experienced a larger drop in working hours at -17.4% compared to -3.9% for employees.

Another problem is unemployment for young people aged 15 to 24. While there were employment gains in September for both young men and women, employment levels for each gender were down about 10% below February levels. Youth unemployment in the accommodation and food sectors, which account for about one fifth of all youth employment, was down 20% in September.

In all there are 1.8 million unemployed Canadians in September; a big improvement from the record high of 2.6 million in May. Of those unemployed today, about 363,000 expect to return to a previous job within 6 months or to start a new job within 4 weeks.

There is much tax and financial advisors can do to help. Consider the following proactive initiatives to build value and trust, particularly with young people: 

Segment Your Client Base. How many of your clients have been affected by unemployment, work absences or reduced work in the gig economy in 2020?    

Help Young People. There are many financial conversations that are critical: 

• How to budget to pay off student loans
• How to access tax savings from moving expenses, child care and tuition fee credits
• How to get the GST/HST Credit or the Canada Worker’s Benefit
• How to access the new Canada Recovery Benefit.

Make a point of educating young people about entrepreneurship as well.

Have Proactive Conversations with Employees.  Reach out to your unemployed clients to discuss RRSP top ups to manage the clawback of Employment Insurance payments in 2020.  Note clawbacks of regular benefits may arise when individual net income exceeds $67,750.  The EI Clawback threshold is 125% of maximum EI insurable earnings for the year.

Have Proactive Conversations with Proprietors.  Discuss cash flow needs from a tax perspective:  do these clients need to continue to make quarterly instalment remittances in light of continued lack of work scenarios in this segment?  Should they purchase assets before year end?  Do they qualify for any new government support? What are their business growth projections for 2021?

CONSIDER IMPROVING YOUR CREDENTIALS TO HELP: Take the newly updated Personal Income Tax Course – Advanced Level, or Budgeting and Forecasting for Small Business. Helping clients navigate new financial challenges is also going to be a featured topic at the Virtual Distinguished Advisor Conference, October 28-30. Be sure to enrol by today!