Deputy Prime Minister and Minister of Finance, Chrystia Freeland, delivered Made-in-Canada Plan (Budget 2023) on March 28, 2023. Budget 2023 is influenced by a range of factors, including tax measures to:
- address the cost-of-living pressures driven by inflation;
- stay competitive in the transition towards a greener economy;
- demonstrate fiscal responsibility after posing massive deficits during the pandemic.
Budget 2023 announces changes to the alternative minimum tax, extends the six-month increase to the GST rebate, and introduces a “grocery rebate”. It also increases spending in areas like health and dental care, and introduces direct support for low-income Canadians, and new programs to boost the clean economy.
Budget 2023 centers around the following three pillars:
People
Budget 2023 announces several measures to support Canadians, including investments in health and child care—such as providing dental care for uninsured Canadians with a family income of less than $90,000 annually, targeted inflation relief, and affordable housing initiatives.
Green economy
Budget 2023 builds on Canada’s transition to a green economy, and introduces various clean-energy programs, partly to compete with new tax breaks and other incentives that were announced in the United States last year.
Labour market
Budget 2023 is focused on strengthening Canada’s labourmarket, and introduces measures to increase skilled trade workers, expand training and innovation programs, and support employee ownership trusts.
In addition, Budget 2023 invests in Canada’s national defense totaling more than $55 billion over 20 years, builds progress towards Indigenous reconciliation, cuts federal travel and reduced outsourcing, and introduces measures to help ensure a fair tax system.
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While Europe offers interesting business opportunities, businesses should remember that they may have to pay VAT.
A growing number of Québec businesses are looking to diversify their markets by exporting products or providing services to Europe. The European Union (EU) is considered the world’s second largest economy, providing access to a vast market of over 500 million consumers.
The Comprehensive Economic and Trade Agreement (CETA), signed by 27 EU member states and Canada, exempts most exported products from tariffs. However, businesses still have to pay value added tax (VAT) and fulfil their tax return obligations.
VAT: Somewhat like GST and QST
VAT is applied and invoiced similarly to the Goods and Services Tax (GST) and the Québec Sales Tax (QST) collected by Québec businesses for most goods and services sold in Québec. It is also a consumption tax that is applied differently based on the type of goods and services bought and sold in the EU.
VAT weighs lightly on a business’s finances since, like GST and QST, the end consumer pays it. However, businesses must make sure to calculate the tax amount (in euros), enter it on invoices along with their VAT identification number and then pay it to the country’s tax authorities on time.
Rates: High and variable
Each EU country sets its own rates, based on three categories: standard rate, reduced rate and special rates. The standard rate cannot be lower than 15% and, in practice, hovers around the 20% rate in effect in France.
In Scandinavian and most Eastern European countries, the standard rate is even higher, ranging from 23% to 27%. In Germany, it is slightly lower, at 19%. Reduced rates or additional taxes may also be applied to the provision of specific goods and services (alcohol, energy, costume jewellery, etc.).
An expert’s preliminary analysis can help you determine the impact of EU taxes on your business.
Beware of nasty customs surprises
Québec and Canadian businesses should not overlook the importance of VAT: they risk having their products detained at customs or at the post office if the exporting business has not collected and paid VAT. Consumers may even get the unpleasant surprise of having to pay VAT when they receive their package. Such a situation could very easily break the trust—and even the commercial relationship—between a business and its customers.
What’s more, in France, VAT is the most evaded tax and involves the most common form of tax fraud. It is therefore subject to very strict controls by the French tax authorities. Other EU countries have also raised penalties.
Annual updates required
Some goods and services are exempt from VAT. However, domestic businesses should not assume that since they are not paying GST and QST, they will also be exempt from VAT in EU countries.
Therefore, when companies decide to do business in Europe, it is in their interest to understand the specific rules that apply to VAT. Furthermore, VAT laws are reviewed and amended every year.
As well, businesses selling goods or services liable for VAT in France may be required to appoint a tax representative to carry out their red tape and obligations. They should therefore expect to incur high annual costs.
Given the complexity and diversity of tax obligations, choosing a competent international tax expert could save you a lot of trouble and costly penalties.
This article was written in collaboration with Alexandre Lecomte, tax consultant at Raymond Chabot Grant Thornton.
27 Mar 2023 | Written by :
Frédéric Gagné is a tax expert at Raymond Chabot Grant Thornton. Contact him today!
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Finance Minister Peter Bethlenfalvy tabled Ontario’s 2023-24 budget (ON Budget 2023) on March 23, 2023.
ON Budget 2023 projects a deficit of $2.2 billion for the 2022-23 fiscal year, compared to a $19.9 billion deficit projected in the previous budget. Ontario anticipates balancing the budget by 2024-25.
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Finance Minister Ernie L. Steeves tabled New Brunswick’s 2023-24 budget (NB Budget 2023) on March 21, 2023.
NB Budget 2023 projects a surplus of $862.6 million for the 2022-23 fiscal year, compared to a $35.2 million surplus projected in the previous budget.