Trade Wars: Why Income Tax Filings Matter More Now

It’s hard not to get caught up in the trade wars saga, and of course it has serious economic repercussions. In times like these, our tax system can help. The federal government has indicated three pillars of support will be enacted, details of which are to come shortly:

1. Business Loans through Regional Development Agencies. The Business Development Bank of Canada and regional agencies will be empowered to provide rapid liquidity and working capital to businesses impacted. This means tax write offs for interest costs on the loans provided and capital cost allowance claims that could create losses that can be carried back to offset business income in the previous three years under current tax rules.
2. Specific Industry Relief. The Prime Minister announced on Friday that financial and structural aid for firms specifically hit with the 50% tariffs will remain in place as long as necessary and may extend beyond the life of the current U.S. Administration as well. This will provide some assurance, from a long-term decision-making point of view, that investments by businesses in Canada will be supported until we get past the next U.S. election. 
3. Protection for Workers. The Employment Insurance (EI Work-Sharing Program will be adjusted to help companies affected by the tariffs to prevent layoffs and retain key talent in the trades. We have been here before with the pandemic supports and it appeared to work quite well. For workers, this will mean the reporting of both salary and EI components in income; for employers it will mean extra record-keeping and further audit potential in the future.  

There is also a fourth pillar not mentioned in the news releases. There are existing measures available under the tax system should incomes drop if these talks break down and the implementation of 50% tariffs occur at the beginning of 2027. This is the myriad of income-tested provisions already present in the Income Tax Act, poised to help:

For Families, Workers and Students

1. The Canada Child Benefit
2. The Canada Groceries and Essentials Benefit
3. The Canada Training Credit
4. The Canada Worker’s Benefit
5. Canada Dental Benefit
6. Forgiveness of Canada Student Loan Programs

For Families with Disabled and Senior Members:

1. The Canada Disability Benefit
2. The Refundable Medical Expense Supplement
3. The Home Accessibility Tax Credit
4. The Refundable Home Renovations Tax Credit
5. The Canada Child Disability Amount
6. The Canada Caregiver Amount
7. The Disability Tax Credit
8. Refund of Federal Excise Tax if Disability Prohibits Use of Public Transit
9. Revisit of Pharmacare Deductibles
10. Canada Dental Care Plan

Options for those Considering Retirement

1. Taking Early Canada Pension Plan Benefits
2. Postponing or initiating Old Age Security
3. Guaranteed Income Supplement

Provincial Options for Low Income Earners

1. Social Assistance
2. Workers Compensation
3. A wide variety of Child Benefits

Good News and Bad News. The ticket to most of these benefits is the filing of a tax return. If you haven’t done so yet, it’s high time to catch up! The good news is that if you do, it’s possible the government will owe you money – often more than most people think – as a result of missed refunds, credits and deductions. You can go back 10 years under the Taxpayer Relief provisions to recover these benefits.

You can also catch up on important provisions like creating RRSP contribution room, recording capital losses that can reduce your taxes in three prior years or indefinitely into the future, or the important aggregation of the Canada Training Credit, which can offset your tuition fees if you are going back to school.

The bad news is that catch up time can mean audit time. Be sure to have all your documentation ducks in a row! Do see a professional tax practitioner trained to help, especially in the case of aggressive collection efforts that can go as far as freezing bank accounts which taxpayers fail to comply with requests to file a return.

Bottom Line: Professionals must be poised to help more in these unusual times. For more information on the details behind these provisions don’t miss the Audit Defence Management CE Summit on September 23. Register before September 9 to save money on tax deductible tuition fees, too.