Highlights of the 2019-20 Federal Budget

Late Tuesday afternoon, the Federal government announced the 2019-20 budget. As a valued client of the Wealth Stewards group, we wish to summarize the most important changes for you.  


Bill Morneau, Federal Minister of Finance, titled the budget “Investing in the Middle Class”. The Minister stated, “We’re going to invest in the middle class and in the things that matter most to Canadians: good jobs, strong communities, a clean environment, and better opportunities for future generations. … So that when young people graduate from school, they’ve already got the experience they need to get a good job. …So that when seniors retire, they can look forward to spending their time with family and friends, not worrying about how they’ll pay their bills every month. …So that every Canadian can feel good about what the future holds, and be confident about their place in a changing world.”


First, let’s reflect on a few key questions we had last year after the 2018 Federal budget was released: 

 

  1. How will Canada remain competitive globally to attract and retain companies after the U.S. lowered corporate taxes in 2018?
    Update – No changes have been made to corporate tax rates.  
  2. What will the U.S.'s stance be on trade policies?
    Update – NAFTA was renegotiated in 2018, now termed the USMCA.  Each country's legislature still must ratify the agreement.  Globally, trade tensions remain.  The U.S. and China still have not reached an agreement and the U.S. has been threatening tariffs on European countries.  
  3. What was the impact of on the economy from the announced budget deficits the past few years?
    Update – Canada’s economic growth, measured by GDP, grew at a slower pace from previous years: 1.8% in 2018, compared to 3.0% in 2017 and 3.60% in 2016. 
  4. What actions will be undertaken regarding the housing market?
    Update – in 2018, mortgage eligibility stress-tests were changed, lowering how much Canadian’s are eligible for a mortgage in order to lower Canadian’s debt relative to their income.  
     

Overall, the themes of the 2019-20 budget are aimed at seniors and young families.
 

Federal Budget BalanceAs expected, the budget laid out large spending promises ahead of this fall’s upcoming election, albeit during a time where economic growth is cooling.  

Let’s reflect on last year’s proposed deficit compared to the actual deficit.  The 2018-19 actual deficit is now projected to come in lower than proposed last year.  Canada will end the year (fiscal year-end March) with a 2018-19 deficit of $14.9 billion, compared to a deficit of $18.1 billion proposed last year.  This came from not using the $3 billion contingency in 2018-19 and higher tax revenue than anticipated.  The deficit represents 0.7% of GDP which is significantly lower than the U.S. budget deficit for 2019 of 5% of GDP.  


Although during the last election the government promised to have a plan to balance the budget by 2019, again, there remains no plan to balance going forward. The projected deficit is $19.9 billion for 2019-20 and $19.7 billion the next year.  Projected future deficits were again centered on maintaining a debt-to-GDP ratio – from 30.8% in 2018-19 to 28.6% in 2023-24.  It is interesting to note that this goal has been pushed back by one year from last year’s budget.   


Many economists foresee a recession within the next two years.  Spending in anticipation of a recession can help the economy when funds are used effectively, to sustainably generate long-term economic activity and productivity.    


What was not included in the budget again was a plan to address Canada’s competitiveness in the global economy.  Since the U.S. lowered corporate tax rates in early 2018, the U.S. is more attractive for businesses to operate in from a tax perspective.  The budget did not announce any changes to corporate tax rates. Last year the government commented that it was waiting to see the outcome of NAFTA negotiations.  


Housing

The budget included measures to improve housing affordability, including an increase to First-Time Home Buyer Incentives.  1) For first-time buyers with a down payment of less than 20%, CMHC will provide up to 10% of the purchase price as an interest free mortgage for new homes or 5% for existing homes.  Full details are yet to be announced.  2) Currently, first-time home buyers can withdraw $25,000 from their RRSP’s to purchase a home without paying tax on the withdrawal all at once.  The budget proposed increasing the limit to $35,000.  

 

Pharmacare

Last year it was announced that a pharmacare advisory council will perform as economic assessment on the possibility of a national pharmacare program.  The council’s final report is scheduled for the summer, although the budget outlined $35 million to Health Canada over four years to establish the new Canadian Drug Agency.  Also included was to develop a national strategy for high-cost drugs, which included $500 million a year starting in 2022.  

Average Out of Pocket Drug Spending
 

Seniors

  • The budget includes automatically enrolling people in the Canada Pension Plan (CPP) at the age of 70 if they have not already applied for CPP benefits.  
  • Measures to review executive compensation when a company files for bankruptcy protection, in order to protect pensions of employees.  This is an indirect result of the Sears Canada bankruptcy.  
  • $50 million over five years for the development of a National Dementia Strategy


Indigenous communities

Consistent with last year, the budget again included further funding for Indigenous communities.   $4.8 billion is planned over 5 years to support areas such as children’s access to social, educational and health services, providing cleaner drinking water to communities, ongoing claims and enhanced governance for communities.  


Journalism

Similar to last year, the budget included details to support journalism.  Journalist organizations which are primarily managed and owned in Canada can apply to be a Qualified Canadian Journalism Organization (QCJO) and can register with CRA in order to issue tax receipts for donations, similar to charities.  


Personal Tax Matters

No changes to personal tax rates. Tax brackets will continue to be indexed to inflation. 
Electric Vehicles – incentives available of up to $5,000 for vehicles less than $45,000
Employee stock options – employees who receive stock options from large corporations are limited to a maximum tax deferral of  $200,000 a year
Medical expense tax credit – eligible expenses have been expanded to include medical cannabis


Business Tax Matters

  • No proposals were made to corporate tax rates.
  • Electric vehicles – electric vehicles and hybrid vehicles will be eligible for a 100% tax writeoff in the year they are purchased up to a limit of $55,000 plus sales tax.
  • Farming - $3.9 billion committed to support dairy, poultry and egg farmers to sustain income of farms as a result to the USMCA (“aka NAFTA 2.0”). 
  • Accelerated depreciation for manufacturing equipment and clean energy equipment.
  • Environmental tax credit – a credit for investments in technology which reduces carbon emissions or energy efficiency in buildings.


There are other detailed business tax changes related to cross border tax issues, transfer pricing and international tax treaties which are not as significant. 
This is a high level summary of the budget announcements. As always, if you wish to discuss any of the 2019-20 Federal Budget matters in more detail, do not hesitate to call us at (905) 891-6052 or email abrydon@wealthstewards.ca. 

Andrew Brydon, CPA, CA
Wealth Counsellor

 

1)Source: https://tradingeconomics.com/canada/gdp-growth