Last updated: November 09 2022
Our economy is shrinking and we can’t avoid that. This was the hard truth Canada’s Finance Minister delivered in her November 3, 2022 Fall Economic Report and Mini-budget, which was followed the next day with Explanatory Notes to a 169-page Ways and Means Motion that amends the Income Tax Act for new measures. A brief synopsis of the economic issues follows. Be sure to request a copy of the Knowledge Bureau Special Report; also enrol now to attend the Nov. 16 Annual Year End Tax Update for in-depth details for professional advisors.
The Economic Outlook. The realities are clear: with higher inflation and interest rates, Canada will see significantly weaker economic growth than anticipated in the April 7, 2022 Budget, just six months ago. Further, there are few new measures to help the multiple generations who will continue to bear the current economic pain: the Boomers and Gen X, Y and Z.
Tax and financial advisors have an important opportunity to proactively review tax and financial plans before year end, to consider ways to shore up wealth and prepare for a more austere 2023. Important facts to consider in having conversations with clients about the new economic outlook:
The Multi-Generational Outcome. The 2022 November Fall Economic Report and mini-budget has multi-generational implications. All Canadians must brace for an economic runway that includes continued high inflation and interest rates which will lead to a more pronounced economic slowdown. In downside scenarios, the government anticipates elevated and more deeply entrenched inflation, which will lead to more interest rate hikes. These conditions will impact consumer confidence, and business activity and the level of wealth in general.
Small businesses will experience increases in EI and CPP source deductions, which will affect their profits as well as the take-home pay of their employees. New minimum taxes on the horizon will impact people with higher incomes and wealth, representing a clawback of tax deductions and credits.
The proposed new tax on share buybacks will impact investors including those age 65 and older and people with more than $100,000 in annual income who the government says have disproportionate amounts of dividend and interest income.
And, despite the fact that over a third of all seniors (38%) and half of those over the age of 75 (47%) have a disability, and over 10% of seniors with a more severe disability live below the Official Poverty Line this document was silent on new provisions for our aging population. This means that families will bear the increased economic consequences of caregiving in the near future, at a time when financial resources are increasingly squeezed by inflation and high interest rates.
A Bright Spot for Students: The government is proposing to make all Canada Student Loans and Canada Apprentice Loans permanently interest-free, including those currently being repaid, beginning on April 1, 2023. This change has an estimated cost of $2.7 billion over five years and then $556.3 million on an ongoing basis.
Consultations on Cryptocurrency Transformation: To help our financial system keep pace with the digitization of money, consultations with stakeholders on digital currencies were launched on November 3, 2022.
Billions More to Improve Service Delivery at Service Canada, CRA, Veterans Affairs and Canada Border Services. The government will provide $1.576 billion to more quickly process EI and OAS claims and respond to queries at call centres. CRA will receive $00 million more over 2022-2024 to support call centre operations and Veteran Affairs Canada will receive $115 to hire more case managers to clear up backlogs. Canada Border Services will receive $137 million to enhance its front line capacity.
Fast-tracking Immigration Services. The government is proposing to hire 1250 new workers to process new immigration applications in Canada. It also proposes to exempt certain low-risk, in-Canada foreign nationals from submitting an immigration medical exam.
Bottom Line: This Fall Economic Statement will serve as a grim forecast of what is to come in 2023, which makes an important case for more fined tuned tax and financial planning before the end of 2022 and a good argument for topping up TFSA, RESP, RRSP, and RDSP room sooner rather than later. Savings room for these important wealth creators could be squeezed further as we head into 2023.
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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