The Tax Outlook: Going Up Despite Projected Economic Malaise

Taxes and source deductions will continue to rise despite last week’s grim economic forecasts from the Finance Department. Here is what’s in store based on forecasting in the Fall Economic Report, released November 3.

In the short term, the reduction in economic activity, noteworthy under the government’s downside scenarios, will lead to lower personal and corporate tax revenues for the government, lower excise taxes and duties and lower proceeds from pollution pricing frameworks than anticipated earlier in the year. 

Higher interest rates will also result in a short-term decrease in Bank of Canada net profits.  Still, taxes will rise across the board:

• Personal income tax revenues – the largest revenue line item for government (48%) will increase to $209.4 billion in 2022-23 or 5.6%, before tapering down to a 4.6% growth rate after this.
• Corporate income tax revenues – these will increase by 15.4% in 2022-23 in the wake of the post-pandemic reopening and then the growth rate will taper down to 5.1% in 2023-23, due to a projected slow-down in economic growth in 2023.  After this, revenues from corporate taxes are projected to grow only 1.5% per year for the remainder of the forecast period. This is a really important metric: how can investors and business owners prepare now for a slow-growth forecast in the 2023-2026 forecast period?  
• GST revenues – these are projected to grow by 2.2% in 2022-23 and then by an average of 4.9% over the remaining forecast period.  This suggests consumer spending growth that is not aligned to the slow-growth forecast on corporate revenues.
• EI Premium revenues – these are projected to grow at 11.7%  for 2022-23 and then taper down to 4.2% based on built in premium rate increases:  $1.58 per $100 of insurable earnings in 2022, $1.63 in 2023 and $1.66 in 2024. These increases are on top of CPP increases in the forecast period and that will make the  cost of labor more expensive for still-struggling small business owners. 
• CPP Premium revenues - For 2023, the CPP contribution rate increases from 5.7% to 5.95%.  Starting in 2024, $4,700 of pensionable earnings will be added to the indexed base pensionable earnings (estimated at about $68,000).  In 2025, another $5,000 of pensionable earnings will be added so that the additional pensionable earnings will be between the estimated base pensionable earnings of about $70,000 and $79,700.  The rate payable on these additional earnings is an 4.0%.  Are business owners who pay higher level salaries taking these increases into account?  It’s an important scenario that requires discussion in business planning now.

Join Evelyn Jacks on November 16 at the Virtual CE Summit when she will highlight these and other significant tax and economic changes affecting your clients in the 2022 tax filing year and in tax planning for 2023 and beyond. 

Evelyn Jacks is Founder and President of Knowledge Bureau, holds the RWM™, MFA ™, MFA-P™ and DFA-Tax Services Specialist designations and is the best-selling author of 55 books on tax filing, planning and family wealth management.  Follow her on twitter @evelynjacks.

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