Federal budget 2019 adds new, ridiculous, insane tax credits, makes tax system even worse
Many of my family, friends and clients have been asking me to share my thoughts on the budget released today. I was hesitant to write this article because what I am about to share with you is very sad and troubling. But the truth must be told and Canadians need to know the insanity and ridiculousness of some of the goodies in this budget.
Firstly, let’s discuss what’s not in the budget! My main concern, as an accountant helping people file their tax returns, is that there is an urgent and dire need for comprehensive tax simplification in this country. The budget completely ignores this issue and makes no mention of Canada undergoing a thorough and comprehensive review of our tax system. So that made me very sad.
Secondly, there was zero indication of any discussion of lowering individual income tax rates. Canada has some of the highest individual income tax rates in the developed world. Seven out of ten provinces have a top marginal rate that is over 50%.
That was not the case ten years ago. Honestly who thinks it’s justified to pay over 50% tax on any dollar of income? Are you really telling me 49.9% isn’t high enough?
The Beatles even wrote a song called “The Taxman” to speak out against the ‘super-tax’ that the UK government established at one point, which was a 95% tax rate on the highest income earners. This song actually played on the radio today, Budget Day, which I don’t think is a coincidence.
Now in terms of the insanity in the budget itself, I am only going to focus on a select few of the silliest most ridiculous ideas in the budget.
The first one is the new tax credit available to any individual who pays for “eligible digital news subscriptions”. This means that if I subscribe to an online newspaper in Canada, I can claim up to $500 per year as a non-refundable tax credit on my tax return, starting after 2019. How does this play out in reality?
The credit is 15% of $500 so it’s worth $75. Meaning, if you claim the full credit of $500, you will owe $75 less of tax or increase your tax refund by $75. Now is this really going to encourage anyone to purchase digital news subscriptions? Maybe it will, maybe it won’t. I don’t know. But I would advise anyone who wants to claim this tax credit to keep the receipts for your purchase because inevitably the CRA must review these claims. So expect to receive a review letter from the CRA asking you to provide proof that you actually paid for these subscriptions!
If you have an accountant filing your tax return for you, they are going to have to charge more for their time to ensure you have the proper receipts and submit those receipts to CRA and liaison and call CRA several times to confirm that the CRA received the receipts and processed them properly. Now is that really worth it for $75?
The time, effort and accounting fees, not to mention the increase in the CRA budget required to administer this silly new tax credit, in my humble opinion, are clearly not worth it.
This same Liberal government eliminated the child fitness tax credit, child arts tax credit and public transit tax credit. I applauded the elimination of these credits because I think all tax credits are silly and should be eliminated. But since eliminating those silly tax credits, they have enacted new silly tax credits such as the digital news subscription credit and the teacher school supply tax credit. It’s just too much to bear.
If the government wanted to help Canadians, they would simply eliminate all these silly credits, save billions of dollars in CRA administrative costs and lower tax rates across the board for every single Canadian. But something more nefarious is happening here and in my opinion it’s an assault on the notion of a democratic country having a free and independent media. Who will hold the government to account if not for a robust free and independent media?
I have read very little in mainstream media, since the budget was released, about the new “refundable labour tax credit”. This is a 25% refundable tax credit on salary or wages paid to “eligible newsroom employees” of a “qualifying Canadian journalism organization”, up to $55,000 per newsroom employee.
This is a bailout for the struggling mainstream media companies that are having trouble competing in the new modern media landscape. So these large corporations will receive a nice handout from the government, to the tune of $13,750 (25% of $55,000) for every single employee.
If a certain industry is struggling, is it the job of the federal government to bail them out? Let’s please remember something, which is critical to understand on “Budget Day”. The federal government has no money.
When we say the federal government is bailing out the media, it’s not the federal government. It’s the taxpayers of Canada. The federal government collects taxes from every individual in Canada and then spends that money how they see fit.
If we individual taxpayers are not individually buying monthly subscriptions to newspapers such as The Toronto Star, The Globe and Mail, or The National Post and we are not interested in having these newspapers delivered to our homes, then why is the federal government taking our money and simply handing it those organizations?
People are not voluntarily purchasing the product they are selling so why is it then acceptable for the federal government to step in, interfere with the economy in this way, and spend our money for us without our permission!
I do not consent for my tax dollars to be used in this manner! There are many small businesses out there that are struggling. I serve as an accountant for many people who are self-employed and running their own small business and struggling to get by. Where is their break? Where is their taxpayer funded bailout?
Another problem with this is that who gets to decide what qualifies as a “qualified Canadian journalism organization”? According to the budget a QCJO must be a corporation, partnership or trust engaged in “the production of original written news content”. Who is going to decide who qualifies? Apparently it will be a panel of “independent” journalists handpicked by the Prime Minister. Will news organizations critical of the government receive the tax credit? Time will tell.
I would implore all media organizations to speak out against this tax credit and not accept the money! How can an organization be independent if they are receiving this type of money from the government?
In Canada, corporations and unions are banned from donating to federal political parties for good reason. It is well known that when a political party receives a donation from a corporation or union, it could potentially be influenced to the bidding of the donor. So if the government has recognized that an organization donating money to a political party can lead to conflicts of interest and potential corruption and therefore banned corporate and union donations, why are we now taking a step backwards, and having the government giving money to news organizations? Who in the world could possibly believe that the media will not be influenced by the federal government if it’s receiving money from the government?
It just reeks of government trying to influence the media. Will news organizations receiving this tax credit speak out against whichever government is in power knowing it could possibly reduce or eliminate its tax credit in the future? The way this tax credit is structured is such that it’s almost as if the government is directly paying newsroom employees!
The tax credit the organization receives is directly based on the number of employees in the newsroom and covers 25% of the employee’s salary up to $55,000. So it’s almost like the government is trying to add these newsroom employees on their payroll! How can they possibly remain objective and independent? This type of targeted specific corporate welfare is very dangerous and should be abolished.
To be fair, there is one good idea in this budget. The current budget allows for journalism organizations to register as “qualified donees” which means they will be able to accept charitable donations and issue donation tax receipts. I think this is actually a good idea and a better model than the refundable labour tax credit described above.
Let Canadians voluntarily donate to these organizations if they feel they are providing value and allow the organization to issue a donation receipt. This is similar to how PBS is funded in the United States, with voluntary donations.
I would propose that the CBC be completely de-funded by the government and allow all media organizations including the newly de-funded privatized CBC to compete in a free market and allow Canadians to donate to those organizations that they feel are providing value. This would also ensure a completely free and independent media.
Another silly tax credit that has been added is the “Canada Training Credit”. This credit allows individuals to accumulate $250 per year in a ‘notional account’ which means they can claim up to $5,000 over a lifetime on fees spent for tuition, admission, charges for a degree or a diploma, exam fees paid to a Canadian university, college, or other post-secondary education institution or an institution providing occupational skills courses.
Why is this silly? Because we already have a system of tuition tax credits. Why could they not just include these types of fees in that already existing tuition tax credit system instead of now creating a whole new aspect of our tax accounts that will need to be kept track of over our entire life?
Every year when you file a tax return, it’s bad enough we have to already track your loss carryforwards, capital loss carryforwards, tuition credit carryforwards, RRSP contribution room, TFSA contribution room, lifetime capital gains exemption amount, Home Buyers Plan repayments, Lifelong Learning Plan repayments, CPP contributions, and EI contributions. Now we have yet another amount to keep track of, the “Canada Training Credit” notional account! It’s just pure and utter silliness.
It adds more complexity to the tax return. I hereby, once again, declare that if the government truly wanted to help Canadians, they would simply lower individual income tax rates across the board! This tax credit only applies to people who are earning at least $10,000 a year of certain income and between the ages of 25 and 65 years old.
Why would they base it off the amount of income you earn? So if someone earns only $9,900 they wouldn’t qualify? And if someone is 24 years old, they don’t qualify? Why not? Who makes these insane rules? It’s just pure insanity. If you want to claim this credit, be prepared to have higher accounting fees to ensure your accountant claims the credit properly and remember more people will need to be hired at the CRA to process the correct claiming of these credits. Guess who pays for the new employees at the CRA? You do, through your taxes. See how that works?
Another silly aspect of this budget is the increase in the Home Buyers Plan amount from $25,000 to $35,000. A better idea would be not to have a limit at all! Just let people take the money out of their RRSP.
If someone wants to buy a house and has money saved up in their RRSP, why not let them just buy the house? That individual is making a conscious decision to take the money from their RRSP to purchase a home. Why do we need the nanny state to interfere and limit the amount they can take out without being taxed up the wazoo?
There should be no limit at all the amount of money someone should be able to withdraw from their RRSP to purchase a home. However, the government feels it knows better than you, the individual. This is the definition of a nanny state.
Every individual decision must be micro-managed by the Ministry of Finance. I find it very ironic that the government wants us to keep our money in our RRSPs to save for our future considering that the federal government’s current debt is $691 billion and growing by the second.
The government can’t seem to save for the future or a rainy day; it maxes out the credit cards and raises our taxes to pay the interest but then preaches to us about the importance of saving money in our RRSPs and not borrowing recklessly!
The budget also announced that an additional $150.8 million over the next five years will be given to the CRA to combat “tax evasion and aggressive tax avoidance” and another $65.8 million over five years to improve CRA’s “information technology systems”. The CRA’s budget is already over $4 billion a year, is this not enough money to administer a tax system? Has our whole country gone mad?
Lastly, the government has projected $19 billion deficits for the next two years. It’s important to remember the Liberals promised during their election campaign they would run modest $10 billion deficits and then return to balance in 2019. Instead their deficits were nearly $20 billion each year and my new four month old baby won’t see a balanced budget until she’s 21 years old!
This federal budget has increased the complexity of the tax return filing system which is good business for me but bad news for any Canadian who is not an income tax professional or who is not a CRA employee. I still cringe whenever I have to type “income tax professional”. There should be no such thing as an “income tax professional”. It’s insane!
The bottom line is that these new tax credits are extremely silly, add undue complexity to the tax system, force people to spend more money on tax filing fees to tax professionals, and force the government to increase the budget for the CRA paid for by further tax increases. If I was elected Minister of Finance, which is my dream one day, I would abolish every single tax credit and deduction and simply lower tax rates to make up for it, cut the budget for the CRA by at least 50%, and abolish our current 40-50 page tax returns for a tax return that would be the size of a post card!
Neal Winokur, CPA, CA