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Government of Canada fall economic statement

Finance Minister Bill Morneau delivered the government’s 2017 Fall Economic Update under the title, “Doubling Down on Progress for the Middle Class.”

Against a backdrop of positive statistics framing “an economy that works for the middle class,” Mr. Morneau announced a handful of measures that respectively will have direct impact on families with children, low-income workers and small businesses.

The economy-wide highlights from the Statement are repeated below, followed by a brief summary of each of the announced initiatives together with some commentary on how these will impact the targeted groups of people.

Economy-wide highlights

In his speech, Mr. Morneau repeatedly cited economic statistics in support of his government’s efforts and achievements in office:

  • Fastest-growing economy in the G7, at 3.7 % over the last year
  • 450,000 new jobs created in the last two years
  • Lowest unemployment rate since 2008, with youth unemployment at an historic low
  • Forecast growth of 3.1% in 2017
  • Improved fiscal outlook of $6.5 billion over what was projected in Budget 2017 last March

It is this last item citing the fiscal improvement that lays the financial foundation for the newly announced measures affecting Canadians on a personal level.

Indexing the Canada child benefit (CCB)

The CCB was introduced by the present government in 2016 as a single program to replace the array of supports then available to families with children. The key features as promoted are:

  • Simple — families receive a single payment every month
  • Tax-free — families do not have to pay back part of the amount received when they file their tax returns
  • Targeted to those who need it most — low- and middle-income families get higher payments, and those with the highest incomes receive less than under the previous system of child benefits
  • Generous — on average, families benefitting from the CCB receive about $6,800 in CCB payments annually.

Announced – Presently, CCB benefits are not indexed, but will now be indexed to keep pace with the rising cost of living as of July 2018. That indexing was previously slated for July 2020.

Impact – This has no effect on who is entitled to receive CCB, only on the amounts received. Entitlement is based on age of the child or children, and family net income as reported on annual tax returns. The CCB program year runs from July to the following June. The following table shows the increased amount for qualifying families beginning next July 2018.

Effects of Indexation Beginning in the 2018–19 Benefit Year

CCB amounts and phase-out thresholds ($) Current Benefit Year 2018–19
Maximum amount per child under 6 6,400 6,496
Maximum amount per child aged 6 through 17 5,400 5,481
First income threshold (for reduced benefit) 30,000 30,450
Second income threshold (for reduced benefit) 65,000 65,975
Source: Department of Finance. Indexation: 1.5% for 2018 and 2.0% (projected) for 2019.

Enhancing the working income tax benefit (WITB)

The Working Income Tax Benefit (WITB) is a refundable tax credit that supports low-income workers. This provides income support in a manner designed to encourage these people to join and remain in the workforce by improving the return on their employment.

For single individuals without children, maximum WITB for 2017 is $1,043, which is paid if income is over $7,171, and gradually decreased once income exceeds $11,838. For families, the maximum is $1,894, which is paid if the family's working income is over $10,576, with decrease beginning at $16,348.

Announced – Funding for the WITB will increase by $500 million annually starting in 2019. This is in addition to the increase of about $250 million annually that will come into effect in that year as part of the enhancement of the Canada Pension Plan.

Impact – The Government will provide further details on the design of this new incremental enhancement in Budget 2018. The federal government will discuss with the provinces how this program may be harmonized with their respective programs before the enhanced WITB takes effect in 2019.

Small business corporate tax rate reduction

Business income earned in a corporation is taxed at a flat corporate rate. For a qualifying small business, a small business deduction applies, enabling those businesses to reinvest more into their operations. The current federal general rate is 15% and the small business rate 10.5%. Each province also has a general rate and a small business rate, which then yields the combined rate for a corporation in that province.

Announced – The government will be lowering the federal small business rate to 10 per cent, effective January 1, 2018, and to 9 per cent, effective January 1, 2019.

Impact – For Ontario, the combined small business rate in 2018 will be 14.5%, and 13.5% in 2019.

Further note on small business and private corporation tax proposals

In the week before the Statement, the government announced revisions to its proposed corporate tax changes. Details are expected in the Budget 2018.

  • Income sprinkling – Tax on split income TOSI (the ‘kiddie tax’) will now apply on dividends to adult children over 18, dependent on their labour and capital contributions and any financial risk undertaken.
  • Lifetime capital gains exemption (LCGE) – Proposed changes will not proceed.
  • Passive income in private corporations – Up to $50,000 of annual passive income will not be affected, but new (more restrictive and costly) rules will apply to passive income over this threshold.
  • Converting income to capital gains on non-arm’s length share sales – Proposed changes will not proceed.

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