Confirmed:  The CCR for Small Business is Tax Free

Ottawa has confirmed that the CCR for Small Business received by eligible Canadian-controlled private corporations (CCPCs) will be tax free for the 2019-20 to 2023-24 fuel charge years, as will the final payment for the 2024-2025 fuel charge year.  Draft legislation was released on June 30, 2025 with this announcement; and will be introduced for law making in Parliament this Fall.   Some of the more significant details are discussed below.

This past week saw three banks ó Bank of Montreal, TD Canada Trust and Royal Bank of Canada ó lower their closed mortgage rates to 2.99%, the lowest level in Canadian history. Generally speaking, these limited-time-only offers were aimed at first-time homebuyers. Yet, given fears of an overheated housing market and warnings about household debt, the move does seem a bit out of step with the times.But is Canada's housing market really overheated? Or is it, as the bank economists have suggested this week, already softening? Certainly, housing prices in Canada have climbed steadily in recent years. One indicator, Statistics Canada's new housing price index, has shown a year-over-year increase of 2.5% in November led by Toronto and Oshawa (treated as one entity by StatsCan) with a 6.2% gain. But Winnipeg, at 5.8%, wasn't far behind, nor was Regina, at 5.3%. Calgary, Vancouver and Victoria were the only cities to see even slight decreases year over year. The Bank of Canada, in its Financial System Review (December 2011), used another indicator: the ratio of house price index to household disposable income. For more than two decades beginning in 1990, the ratio hovered around three. By 2010, the house price index was five times household disposable income, a worrisome jump. The International Monetary Fund, in its November 2011 report on Canada, looked at two other housing price indicators, which it feels are historically high. The price-to-rent and price-to-income ratios are 29% and 20%, respectively, above their averages for the last decade. "Their elevated level and other empirical evidence suggest that house prices may be higher than justified by underlying fundamentals, at least in some provinces,î says the report. "Staff estimates indicate an average price overvaluation of around 10%, with significant regional differences.î But the indicator to which bank economists look is the national residential average price published by the Canadian Real Estate Association. In December, the year-over-year price increase was a mere 0.9%, the slowest pace of growth since October 2010. Sales, too, slowed, up 4.6% from year‐ago levels. "For all of 2011,î points out Doug Porter, BMO's deputy chief economist, "sales rose a mild 2.2%, hardly worthy of the hectolitres of ink spilled over the subject in recent weeks.î The economists expect prices to continue to shrink as 2012 advances. Adds Benjamin Tal in his CIBC report: "It is highly probable that the first quarter of 2012 will see the first year-over-year decline in prices since the recession.î What worries the Bank of Canada and the IMF is not a U.S. style crash but the impact on the recovering economy if housing prices drop 10%-15%. In a "negative feedback loop,î declining house prices would reduce household net worth, causing consumers to check spending further. It would also affect employment in the construction sector which would soon take its toll on employment in other sectors. "An external shock triggering a decline in house prices by 15% accompanied by a severe downturn of construction activity,î says the IMF report, "could result in a GDP decline of some 2.5% over a period of two years relative to the baseline.î Then, there is the question of affordability if interest rates return to historic norms. "Further out,î says Tal, "the most likely scenario is that the eventual increase in interest rates will lead to a decline in prices (probably in the magnitude of 10%-15%).î But overall, bank economists seems to feel the softening house prices are just what is needed to ensure a "soft-landing scenario.î As Porter concludes: "We look for both sales and prices to be roughly flat this year. That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices.î TD Bank Group economist Francis Fong strikes the most cautionary note: "2012 is likely going to be a bumpy rideÖ The first half of this year will likely see housing activity pullback further from its current level alongside both global and domestic economic conditions, while the second half of the year is likely to see some improvement as those same factors improve.î   Additional Educational Resources: Financial Recovery in a Fragile World and Debt and Cash Flow Management    

ï The 15% federal corporate income tax rate kicked in Jan. 1, the final stage of the federal government's tax-reduction plan begun in 2007. ï Also effective Jan. 1, the 15% non-refundable Family Caregiver Tax Credit on an amount of $2,000 will provide tax relief to caregivers of infirm dependent relatives who historically have received little support, including common-law partners and minor children. ï The temporary 50% straight-line accelerated capital cost allowance rate for investments in manufacturing or processing machinery and equipment has been extended in the 2012-2013 fiscal year. ï You now have $5,000 more room in your Tax-Free Savings Account (TFSA). ï This year's deadline for making a contribution to your RRSP is Wednesday, Feb. 29.

Our family had a wonderful Christmas in Asia this year, reuniting with our son who has been working in Cambodia. While we were there, the Cambodia Daily News ran an interesting article written by Al Gore and David Blood entitled "Sustainable Capitalism in a Global Economy.î In it, the authors made the following observations: It's important to abandon short-term economic thinking in favor of "sustainable capitalism,î which maximizes long-term economic value by reforming markets to address real needs while integrating environmental, social and governance metrics in the decision-making process. We are at a rare turning point in history when dangerous challenges and limitless opportunities require clear, long-term thinking to solve disruptive threats such as climate change, water scarcity, poverty, disease, growing income inequality and massive economic volatility, to name a view. Companies and investors will ultimately be the ones to mobilize the capital needed to overcome these challenges. I found this extremely interesting. At the Knowledge Bureau, we have pioneered the development and implementation of a framework for building sustainable family wealth. We call it Real Wealth Managementô and thousands of students from across Canada ó most of them tax and financial advisors ó have taken our certificate programs over the past eight years. Real Wealth Management training facilitates joint decision-making between clients and their advisors following a strategic framework within which families accumulate, grow, preserve and transition wealth with future purchasing power, that is, after taxes, inflation and fees. Authors Gore and Blood argue that integrating sustainability into business practices enhances profitability. It helps companies save money by reducing waste and increasing efficiencies throughout their supply chains, and it improves human relations thereby increasing employee retention and reducing the cost of employee training. Sustainability modeling also helps companies achieve higher compliance standards and manage risk because they have a better and more holistic understanding of the issues that affect their businesses. This is entirely true of the Real Wealth Management framework for building sustainable family wealth. It challenges those who have trouble managing their income and creating capital to understand how they use their money and encourages them to take a future-oriented approach rather than a short-term, reactive response. Building individual and family net worth over the long term involves following Real Wealth Management's consistent strategy and measurable process. Taxation is an important factor in building sustainable family wealth because it can erode both income and capital over time. With tax season upon us, it makes sense to begin now to plan, so you can increase after-tax income for 2012 and accumulate and grow intact capital that will reliably produce income for the future. It's your money, your life. In a volatile economic environment, it makes sense to learn about the Real Wealth Management framework so you can better accumulate, grow, preserve and transition wealth. Given that it's the start of a brand new year, you may find yourself creating new opportunities for a brighter, more secure financial future. Wouldn't it be good to replace financial worries with peace of mind? Happy New Year! Evelyn Jacks is President of Knowledge Bureau, an educational institute that focuses on excellence in financial education. For more information on Real Wealth Management, please see http://www.knowledgebureau.com/. Evelyn is the author of 48 books; her latest is Essential Tax Facts 2012. She is also the co-author of Financial Recovery in a Fragile World with Robert Ironside and Al Emid.

The evidence is mounting: Canadians are taking a dark view of 2012. Shaken by global events and a battered U.S. economy, individuals, businesses and governments are expecting slower growth, prolonged belt-tightening and retrenchment. Rightly or wrongly, it seems pessimism reigns in 2012. Last month, Pollara Strategic Insights surveyed 2,878 Canadians and found Canadians the most pessimistic they have been in the 16 years Pollara has done the survey. As Pollara chairman Michael Marzolini told the Economic Club last week, Canadians are "seriously concerned and worried.î Pollara found: ï 70% of Canadians feel Canada is still in recession, even though the recession in Canada was relatively short-lived. (Canada came out of recession in third quarter 2009.) ï 80% believe it will take two years, if not three, for recovery to take hold of Canada's economy; only 20% expect a recovery in 2012. ï 50% expect their household income to fall behind the cost of living. ï 80% of Canadians say their overall financial situation is getting worse or holding steady; only 20% say they are getting ahead. ï 80% do not expect the job market to improve in 2012. "Canadians believe themselves to be under siege,î said Marzolini, "and they have entrenched accordingly in a return to basic economic survival issues.î According to Marzolini, Canadians have a new hierarchy of economic priorities and concerns: "At first, these were oriented around their families and their personal financial situations. Now, they have expanded to include any government policies that affect their ability to make ends meet.î Topping the concerns of 80% of Canadians is a rising cost of living. There is a pervasive fear that inflation will return in 2012 (60% of Canadians), fueled in part by higher taxes ó 65% of Canadians foresee higher taxes this year ó as governments at all levels come to terms with overspending. In fact, 72% of Canadians are concerned about the size of government debt. Second concern is having enough money to retire. Only 14% of Canadians expect share values to improve in 2012 while 41% expect to see a huge loss in the value of their investments. "Canadians have tightened their belts for three years,î Marzolini said. "They consider themselves financially brutalized. They are frustrated that the public sector, at all three levels, has yet to tighten its own belt.î Whether that pessimism is justified or not, Canadian businesses are taking their cue from consumers. The Bank of Canada's Business Outlook Survey, released this week, found that 41% of the 100 businesses surveyed expects sales in 2012 to be less than in 2011; 22% say sales will stay the same and 37% expect greater sales. That puts the balance of opinion ó percentage of firms expecting faster growth minus percentage expecting slower growth ó into negative territory. "Overall, the weak U.S. economic outlook, concerns about adverse effects from the situation in Europe and an expected slowing in household spending were among the factors dampening sales prospects,î the report explains. When it comes to investment in machinery and equipment and employment in 2012, the businesses are more upbeat. The balance of opinion on investment in machinery and equipment continues to point toward increased spending over the next 12 months: 41% expect investment levels to be the same as last year, 40% expect to invest more and 19% less. Businesses, however, remain cautious. Says the report: "Intentions to increase investment are being supported by efforts to reduce costs, seize new opportunities or reposition through expansion.î On the employment front, survey numbers indicate higher employment with the Prairies the main driver of growth: 41% expect employment to be the same, 40% intend to increase employment and only 9% foresee lower employment. That businesses will increase spending, even modestly, is good news for the economy as governments set about curtailing their stimulus spending and start the long process of reducing deficits. In its 2011 Article IV review of Canada, the International Monetary Fund reported: "Staff projects growth to decelerate to around 2% on average in 2011 and 2012, constrained by weak external demand and ongoing fiscal adjustment. Private demand will remain the driving force behind growth, with investment expected to play a key role.î The IMF report applauds the federal government's handling of the financial crisis and feels its fiscal consolidation is on schedule. But, it says, risks are tilted toward the downside. The "spilloverî effect of crises in Europe and the U.S. as well as domestic pressures arising from record household debt ó now more than 150% of disposable income ó and rising housing prices could throw the Canadian economic recovery off track. "Should the recovery be accompanied by further sustained increases in mortgage debt as a share of disposable income spurred by low interest rates," says the IMF review, "a tightening of macroprudential policies by the government may be needed.î It seems Canadians have every reason to be seriously concerned and worried as we move into 2012. Additional Educational Resource: Financial Recovery in a Fragile World  

From Jan. 1 to March 31, 2012, the Canada Revenue Agency (CRA) will charge you 5% interest on overdue taxes, Canada Pension Plan contributions and Employment Insurance premiums. Interest on overpayments owed by the CRA to corporate taxpayers will be 1% and to non-corporate taxpayers 3%. To calculate taxable benefits for employees and shareholders from interest-free and low-interest loans, the rate is 1%. Rates are calculated quarterly. The federal government would like your input on Pooled Registered Pension Plans (PRPPs). The Department of Finance has released for consultation draft legislation for changes to the Income Tax Act and the Income Tax Regulations to accommodate PRPPs, a broad-based, low-cost, defined-contribution pension vehicle available to employers, employees and self-employed individuals. You can submit comments to PRPPtaxrules-RPACreglesfiscales@fin.gc.ca until Feb.14,2012. The backgrounder and explanatory notes can be found at www.fin.gc.ca/n11/11-134-eng.asp.

Any way you measure it, credit rating agency Moody's Investors Service doesn't like Ontario's increasing debt. It has put the province on notice, revising its outlook to negative from stable. Ontario's 2012-2013 budget will determine whether the province's Aa1 rating is downgraded come spring. Certainly, Ontario has accumulated a mountain of debt ó $238.4 billion as of the province's March 31, 2012, fiscal year end. According to data from RBC Economics Research, that is the highest provincial debt by far; the next closest is Quebec, at $166.1 billion, with third-place British Columbia, at $36.5 billion, presenting another sizeable gap. Alberta is at the other end of the spectrum, with an $11.3-billion surplus. Ontario's debt is surpassed only by the federal debt of $585.2 billion. On a per-capita basis, Ontario's debt is $17,830, second only to Quebec's $20,829. Federally, debt per capita is $16,970. But perhaps a more important indicator is net debt as a percentage of gross domestic product (GDP). For the 2011-2012 fiscal year, Ontario's debt-to-GDP ratio is 37.4% and, although the province promises to balance the books by 2016-2017, debt is expected to rise for the next few years. Derek Burleton, deputy chief economist at TD Bank Group, expects the debt-to-GDP ratio to reach an uncomfortably high 40.6% before it stabilizes in 2015-2016. As part of its undertaking to reduce its $16-billion 2011-2012 deficit, Ontario's government has promised to keep increases in program spending over the next six years to 1%-1.5% a year. Burleton says that represents "the longest period of austerity Ontario has seen in the Post-War period.î Ontario's ability to stick to the plan worries not only Burleton but also Moody's. It is concerned an unexpected economic shock could knock Ontario plans "off target.î Ontario has already adjusted its projections for economic growth downward because of the worsening global outlook. In its November 2011 Economic Outlook and Fiscal Review, it projected real GDP growth for 2011 and 2012 at 1.8%, revised from 2.4%. Growth in 2013 will be 2.5%, it says, and 2.6% in 2014.