Recommendations for Next Federal Budget

Evelyn Jacks

Canada’s last Federal Budget occurred on March 19, 2019.  The 2021 budget has now been deferred again making it more than two years since our country had one.  Why is this important news?  Because Canadians need to make decisions about their financial futures, with the benefit of economic forecasting and certainty about tax law.  And there are many recommendations about needed change to talk about.  

For example, in releasing its pre-budget consultation report, Investing in Tomorrow:  Canadian Priorities for Economic Growth and Recovery, the Standing Committee on Finance made 145 recommendations on February 21, 2021.  It’s worth a look.  It received responses from close to 800 individuals and organizations, and heard from over 50 witnesses on how to restart the Canadian economy.

A few of the more interesting recommendations, from a tax and financial planning point of view, appear below:

1. Recommendation 24.Make the disability tax credit refundable.
2. Recommendation 26.Extend Old Age Security payments to the surviving spouse of a deceased individual to three months.
3. Recommendation 42. Extend income support programs such as EI and the Canada Emergency Wage Subsidy, and consider the implementation of a universal basic income program.
4. Recommendation 43. Establish a legal definition of self-employment status to end discrimination between these workers, employees and different types of businesses.
5. Recommendation 46.Reform tax and benefit programs to allow low-income workers to keep more of their wages to be the primary beneficiaries.
6. Recommendation 56. Eliminate the capital gains tax on donations of shares in private corporations or real property to charities.
7. Recommendation 81.Implement personal and market-driven tax incentives to attract equity capital and private investment for new business formation as well as the expansion of existing small and medium-sized businesses (SME).
8. Recommendation 116. Grant the seller the same tax benefits when a farm or small business is sold from a parent to a child in the form of corporate shares as if it were sold to an unrelated person.
9. Recommendation 117. Amend the Income Tax Act to clearly define that income earned by private campgrounds who employ fewer than five full-time employees year-round be considered as “active business income” for the purpose of determining their eligibility for the small business deduction.
10. Recommendation 118. Review the rules defining passive and active business income, including the five‑employee rule for small businesses.

Understanding the direction that tax law will take in all of these areas is essential.Especially when it comes to the treatment of tax credits and social benefits, the level of tax free zones, the taxation of income in a small business corporation,  the transfer of businesses to family members and the transfer or publicly traded shares to charity. These issues all have an important impact on plans for after-tax income, retirement, estate and legacy planning. 

Bottom Line:  The Finance Department explains the reason for its annual budget process this way: “The Budget is a blueprint for how the Government wants to set the annual economic agenda for Canada. And it's the job of the Department of Finance to prepare it. The budget, usually tabled early in the year, is generally preceded in the fall by another major statement, the Economic and Fiscal Update.” (Knowledge Bureau Report covered that update on November 30, 2020)

It’s government’s responsibility to help Canadians make meaningful financial decisions about their financial future.  Further, as taxpayers are not allowed to do retroactive tax planning; it is most important that governments propose and implement tax law that is certain.  

Setting the economic agenda through an annual budget process will provide the strategic direction to steer out of financial crisis the pandemic has caused.  That’s a positive tool in decision-making.  However, receiving that direction close to halfway through the year diminishes that potential empowerment.  That’s a missed opportunity.

Additional educational resources: Better help Canadians prepare for their financial futures, despite these uncertainties. Join us for important insights in this area at the May 20 Virtual CE Summit which will provide a 2021 Retirement and Estate Planning Update. Act by May 15 to take advantage of early-bird tuition prices! Or, enrol in the month of March to take advantage of a special tuition offer: 2 CE Summits for $995 with code ‘21LUCK’.