Share
Federal Budget 2022: Drafted in Dark Red Ink, A Plan Without Measures to Deal With the Workforce Shortage
A team of Raymond Chabot Grant Thornton experts has carefully analyzed the second budget presented by Canada’s Minister of Finance, the Honourable Chrystia Freeland, and is issuing some of its observations today, along with its Tax Bulletin, which outlines the tax measures contained in this budget.
The Canadian economy has improved, however, inflationary pressures, the war in Ukraine and the effects of the sixth wave of COVID are expected to undermine public finances. As a result, balancing the budget is still not on the horizon and, unfortunately, there is a lack of measures to help fill job vacancies, a persistent challenge facing all businesses.
Positive economic and fiscal measures…
As a firm serving local entrepreneurs and business leaders, Raymond Chabot Grant Thornton emphasizes the need to generate investment and attract new capital. The new public investment mechanism, the Canada Growth Fund, initially capitalized at $15B over the next five years falls within this objective, and will support investment in quality jobs and new sectors.
Tax Partner, Jean-Pierre Poulin, says, “Cutting taxes for growing small businesses, supporting the supply chain with $603.2M injection over five years and the creation of a Canadian Innovation and Investment Agency with a $1B budget over five years is all good news.”
However, Raymond Chabot Grant Thornton is not in favour of taxing financial institutions to help the government pay for the costs of the recovery. The firm had outlined various options in its recent 2022 federal pre-budget proposals, including one to quickly reinstate a new form of the federal immigrant investor program that expired in 2014 and brought in significant foreign income.
… and others we would have liked to see
The federal government must do more to support entrepreneurial succession. The firm welcomed adoption of Bill C-208 amending the Income Tax Act (transfer of a small business or family farm or fishing business), even though are still no measures to apply it. These types of family businesses would not be taxed on some or all of the capital gain resulting from the sale of their business to a company held by one or more of the owner’s children or grandchildren.
The problem remains for all other family business transactions. This inequity in the Income Tax Act [section 84.1] continues to apply to all other medium- and large-sized businesses from other strategic sectors of our economy.
“Furthermore, it deters retiring entrepreneurs from investing in their businesses. Yes, Bill C-208 is good, but it is not enough to ensure true tax fairness in the intergenerational transfer of businesses of all sizes and in all sectors,” says Regional Vice-President and National Business Transfer Leader for the firm, Éric Dufour.
A tax credit to foster the acquisition of new technologies would be very appropriate to support technological innovation, something that is critical for all businesses. While there are already several measures in place, including the $4B Canada Digital Adoption Plan, and despite the announcement in this budget of an Innovation and Investment Agency, a new tax credit to encourage innovation, modelled on Québec’s recent C3i tax credit, could have been announced, as the firm recommended.
“Companies like tax credits. In this case, such a credit would allow executives to plan their technology acquisitions based on predictable funding that meets clear criteria. It’s essential to support businesses in their technology acquisitions and we encourage the federal government to do so, especially since accelerating automation can help address the shortage of workers,” states Tax Partner, Pascal Perreault.
As a reminder, the 2021-2022 Québec budget further enhanced the C3i tax credit by temporarily doubling its rate to 40% for certain acquisitions made after March 25, 2021 until January 1, 2023. In the recent 2022-2023 Québec budget, this enhanced credit was extended for one year, representing an additional investment of $156M.
Tax Partner, Sylvain Gilbert says, “On the labour side, we would have expected to see a tax incentive to encourage experienced Canadian workers to stay in or return to the workforce. With nearly 916,000 job openings across the country as of December 2021, there is an urgent need to act.”
In addition to immigration to help fill job vacancies, particularly through the recent easing of the Temporary Foreign Worker Program (TFWP), which the firm applauds, Raymond Chabot Grant Thornton believes that the introduction of a federal tax credit for career extension, similar to the one found in Québec but in an enhanced version, would be a favourable measure to encourage older workers to stay in the job market longer.
Unfortunately, in Québec, despite all efforts, there are few tax benefits available to individuals close to retirement to extend their employment or to young retirees who may be considering a return to the workforce. In order to encourage experienced workers aged 60 and over to remain in or return to the workforce, Raymond Chabot Grant Thornton suggested that the rate of the tax credit for career extension remain at 15%, but that the $5,000 deductible be abolished and that no reduction of this credit be applied, regardless of the individual’s taxable income.
The firm also proposed that a tax shield be applied if an individual receives Old Age Security or Guaranteed Income Supplement benefits and chooses to work past age 60. This would allow the individual’s social program benefits to be offset by a refundable tax credit in the event of a reduction or loss of these social programs, up to an annual eligible salary increase of $20,000, for example. Sylvain Gilbert says, “Such an opportunity should be explored without delay considering that every worker is needed to address the significant challenge of the workforce shortage.”