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Death and Taxes
Creeping brackets, dropping inflation, a maritime arts implosion, Garry's annual tax theft - and more Small Business insights into your inbox!
A shorter newsletter this week thanks to the Family Day weekend - we hope you all found some time with family (however you choose to define that family). Also - apologies if this edition was delayed getting to your inbox at the usual time - there were some technical outages plaguing the internet today!
The big story (and the theme generally) this week is - as you’d expect - TAX. Yes, it’s that time of year, and even if you’re planning on submitting as late as possible (that’s June btw for you self-employed renegades) you’re probably already starting to think about what you owe not just the Federal Government - but also the Provincial Government.
As inflation rises, so does the threat of ‘bracket creep’. Bracket creep occurs when a Provincial Government doesn’t move tax brackets in line with inflation - and inflation then pushes taxpayers into higher tax brackets.
This is also true (in a way) with Provincial Sales Tax. If Provinces don’t rebate sales tax in line with the rising cost of living, then people end up paying relatively more tax into Provincial coffers through simply buying more costly essentials.
All of this creep means less money in the local business community being spent - and more money sitting in local government accounts gaining (now much higher levels of) interest.
It’s a stealth tax effectively, and it’s one created by a lack of political action - which therefore makes it much harder to spot - and much harder to call out.
Provincial taxes are one of the few things in the world of tax that are more open to public pressure and discussion (unlike at the Federal level where markets and complex fiscal policy tends to dominate the debate). Chambers of Commerce, advocacy groups and the general electorate all have the opportunity to make their voices heard loudly at provincial budgeting meetings - and while they do make noise about a lot of things, tax remains one of the areas that people generally tend to feel is just not up for real, open debate. Part of that is because tax is necessary in a functioning society, and the majority of communities feel the benefits of tax on a daily basis (whether they admit it or not) - schooling, health, recreation, parks, activities, childcare, roads, bridges, etc. These every day things all use tax money, and there’s a general fear that arguing to reduce or rebate Provincial taxes would, in turn, prevent those very same communities campaigning and arguing for better Provincial investment in essential and adjacent services and projects.
But with the rise in inflation, we should now all be looking more closely at our Provincial approach to taxation - that means debating how it’s collected, not just arguing about how it’s spent.
If you notice that your Provincial tax rates haven’t changed this year or that rebates are notably absent - despite the high rate of inflation and interest rates - it might be worth thinking about why this may be, and how it might be addressed.
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Top story this week☝️
Inflation continues to trend downward
The last time inflation was at 5.9% it was February 2022 - Putin started his invasion of Ukraine, COVID restrictions were being dropped in Alberta, the trucker convoy triggered the Emergencies Act. Food prices however are still running high - up 11.4% compared to this time last year, pushing the Consumer Index up again by 0.5% this month alone. That’s to say a lot has happened in the past 12 months, and the cycles we’re dealing with now are month-to-month not year-to-year. Link
Nova Scotia off the boil
It feels like we’ve been on a downer about Nova Scotia recently, but they do keep ignoring the basic stuff, preferring instead to embrace a weird inertia. Last week there was the controversy that the Regional Municipality was looking to cut Parks and Arts funding in half, despite their current arts spending per capital being a measly $1.16 compared to the typical (pick a province) $7 - which would have a knock-on affect for a lot of Small Businesses. This was off the back of the cull of the Nova Scotia Art Gallery investment in July, despite the growth of the NSCAD art school and the need to further invest in sustainable cultural tourism. Now there’s a report that NS has not adjusted their tax thresholds for 23(!) years - one of only two provinces to not do so. The phrase ‘speculate to accumulate’ seems somewhat absent at the moment. Link
Tax changes to consider on your latest return
Nova Scotia might not have adjusted their tax thresholds, but many provinces have, and the Federal thresholds have certainly shifted to align with inflation (a significant jump of +6.3%) - so it’s worth checking how that works for you. Other big changes this year include a new Underused Housing Tax, credits for homeowners and the self-employed - plus a rise in the Canadian Pension Plan and Employment Insurance. Link
Of course Facebook is copying people again. Link
A Toronto firm has finally figured out how to recycle batteries in a green way. Link
A ‘future trends in tech’ report that’s actually worth your time. Link
The Data Room 🤖
Each week, The Data Room provides some insight into Small Business data, and each month(ish) you’ll get a deeper dive in your inbox. Here’s this weeks insight:
Exploring your friends friend Garry - and his annual tax theft
As most Canadians start to ponder over the state of their personal finances ahead of the April 30th deadline, many will choose to brush a few things off that might not have been exactly…fair and square.
Aside from the usual suspects that we all associate with tax evasion and the underground economy, people often forget that a large portion of illegal activity comes from everyday dealings that would never end up in an HBO documentary. Everyone knows a guy who knows a guy that is pretty handy and doesn’t mind doing some extra work for a bit of cash. It’s hard enough to hire a contractor in most provinces and the temptation to get Garry from down the way to come take a look at your siding is pretty real.
Turns out, since 1992 the government has been doing its best to track these numbers. Of course there are some limitations, there are some particular illicit dealings (which we won’t bother writing out) that don’t make their way into the official numbers, but the best estimate is it racks up to just under 3% of GDP or $68.5 billion. This means that the underground economy’s value as percentage of GDP is about double of that of agriculture, forestry, fishing, and hunting combined. It might surprise you that the vast majority of this illegal cash is going into guys like Garry, but “investment into residential structures” (aka fixing your house) far and away tops the chart of all-time popular tax-dodges. Moreover - it’s growing - illicit investment into residential structures grew by 18% from 2020 to 2021 and had a total value of about 24 billion or 35% of all recorded underground economic activity.
Some other major offenders include household purchases of alcoholic beverages, tobacco and cannabis products (23%) and landlords who didn’t report income earned from tenants (12.7%). The CRA of course encourages Canadians who dabble in illicit trades to report any earned income on their taxes. While there’s a push to simplify taxes for the average citizen (which is a good thing!), maybe we could benefit from a broader discussion about why people feel the need to underreport their taxable income. Is it because taxes are too high? Is it because the government isn’t transparent in how that tax money is spent?
Market at-a-glance 📈
BOC Indicators (Link):
BOC Prime Rate: 6.70%
BOC Unemployment Rate: 5.0%
BOC CPI Inflation Rate: 6.3%
BOC $USD Exchange Rate (Link):
Low: 1.3345 CAD [0.7493 USD]
Average: 1.3421 CAD [0.7452 USD]
High: 1.3487 CAD [0.7415 USD]
Best GIC Rates (Link):
1-year GIC: 5.28%
3-year GIC: 5.08%
5-year GIC: 5.08%
Best 5Y Mortgage Rates (Link):
Prime Rates (Link):
TD Bank: 6.70%
National Bank: 6.70%
CRA Canadian Pension Plan Rate: 5.95%
CRA Employment Insurance Rate: 1.63%
CRA Minimum Wage per Province: Link
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