2023 federal budget—What you need to know
The government tabled the federal budget on Tuesday, March 28 and our tax experts were there to explore how it might impact you.
2023 FEDERAL BUDGET
Top takeaways
[Soft music]
[Jamie Golombek, Managing Director,
Tax and Estate Planning, CIBC Private Wealth]
Tuesday's federal budget 2023 had a number of changes and measures that affect both individuals and corporations. Let's take a few minutes and review some of the changes that you'll want to know about.
First, let's begin with the grocery rebate. To help lower income Canadians with increasing costs particularly the cost of food, the budget proposed an increase to the maximum amount of GST credit for January 2023 (that we just received), known as the grocery rebate.
[Grocery rebate
• Eligible individuals will receive twice the GST rebate received in January 2023
• To be paid ASAP after legislation is passed
• Maximum additional amount will be $153 per adult, $81 per child, $81 additional
single supplement]
And eligible individuals are going to get twice the amount that they received in January that will be paid as soon as possible once the legislation has passed. So, this maximum official amount will be $153 per adult or $81 per child, and another $81 for a single supplement.
[Alternative Minimum Tax (AMT)
• Changes expected to generate an additional $3 billion in revenue over the next five
years]
The big news for higher-income Canadians, of course, is a complete rehaul of the alternative minimum tax known as the AMT. Starting in 2024, the government, being concerned that high income individuals are paying relatively little in personal income tax as a share of their income, are going to be introducing this new, rebranded AMT.
It is expected that the AMT changes will generate an additional $3 billion in revenue over the next five years and in fact will affect and target primarily the highest income earners in Canada.
The Government did announce a number of changes to a variety of registered plans. First of all, they made a couple of changes to RESPs and RDSPs.
[Registered Education Savings Plan
• $8,000 of Educational Assistance Payments (EAPs) allowed in the first 13
consecutive weeks of enrollment
• Divorced/separated couple can open an RESP as joint subscribers]
The RESP, education savings plan, they've made a slight change there to allow $8,000 instead of $5,000 in the first 13 consecutive weeks of enrollment, in terms of an educational assistance payment. And they also amended the requirement when
you open up an RESP, a joint RESP, currently you have to have spouses or common law partners. The new budget proposes to allow a divorced or separated couple to open an RESP as a joint subscriber for one or more of their children.
[Registered Disability Savings Plan
• A parent, spouse or partner is permitted to open an RDSP for a beneficiary over the age of 18 whose capacity is in doubt
• Expanded the definition of a qualifying member to include a brother or sister of the beneficiary]
There's also a small change to the Registered Disability Savings Plans. Under the current rule, there is an issue if you have someone who has a child over the age of 18, but they don't have the mental capacity to be able to enter into a contract. As a
result, under a temporary rule which is now being extended till the end of 2026, a parent or a spouse or partner is permitted to open up the RDSP for them as opposed to just trying to get a guardian or legal representative. And they've also expanded the
definition of a qualifying member to also include a brother or a sister of the beneficiary who's at least 18 years of age, to allow a sibling to establish an RDSP for an adult with disability who doesn't have the capacity to enter into their own RDSP contract.
[Corporate Tax Changes
• Intergenerational business transfers
• Introduced legislation to facilitate employee ownership trusts]
A few quick changes for corporations. There was a bill a number of years ago to facilitate intergenerational share transfers. That was Bill C-208. The government is just making a couple of changes there to make sure that people don't take advantage of that rule inappropriately, if there hasn't been a bona fide sale to a family member. They've also introduced legislation to facilitate employee ownership trusts, which have been popular both in the U.S. and the U.K. as a way of allowing a corporation to transition to some of the key employees of the business in future generations on a tax effective basis.
[General Anti-Avoidance Rule (GAAR)
• GAAR will be amended to address interpretive issues
• This could include a GAAR penalty equal to 25% of the amount of the benefit
• Extending a reassessment period by three years for GAAR assessments]
And then finally, there are some changes coming to the General Anti-Avoidance Rule or the GAAR, to strengthen the GAAR. The GAAR basically is the rule that was introduced back in 1988, that effectively says that a tax benefit could be denied if the
government deems it to be inappropriate. So, the GAAR will be amended to help address the various interpretative issues that the Government is concerned about, that the GAAR is not currently applying as intended. This could include a GAAR
penalty equal to 25% of the amount of the benefit, as well as extending a reassessment period by three years for GAAR assessments.
[Soft music]
[CIBC advisors provide general information on certain tax, investment and estate planning matters; they do not provide tax, accounting or legal advice. Please consult your personal tax advisor, accountant, licensed insurance professional and qualified legal advisor to obtain specialized advice tailored to your needs.
This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated and are subject to change.
The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC.]
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Benjamin Tal: 2023 Economic Outlook - Light at the end of the tunnel?
2023 Economic Outlook – Light at the End of the Tunnel?
[Soft music plays]
[Benjamin Tal, Managing Director and Deputy Chief Economist
CIBC Capital Markets Inc.]
Everybody is talking about inflation. But the reality is that at the end of the day, this is not
about inflation.
[Sheets of currency being printed. The Bank of Canada, in Ottawa. The Federal Reserve in
Washington.]
This is about the cost of bringing inflation down to 2%, which is the target. The Bank of
Canada, the Fed in the U.S., have established their reputation as inflation fighters. They are
not going to toss it away. Given a choice between a recession and inflation they will take a
recession any day. That's the reality.
[Sources of inflation]
The trajectory of inflation is important here. This trajectory is changing.
[An aerial view of a shipping dock. A person online shops on their phone. An aerial view of a
warehouse and shipping center.]
At any point in time, there are two sources of inflation, supply driven inflation and demand
driven inflation.
[A full warehouse. Bustling shipping docks. The Bank of Canada building. A timelapse of
downtown Toronto.]
What we are seeing more and more, is that the contribution of the supply driven inflation is
diminishing, which means that the supply chain is improving, shipping cost is down. And
that's actually extremely good, because it means that the Bank of Canada is becoming more
powerful in its ability to deal with the situation because more and more inflation is not
coming from the outside, but rather from domestic sources which the Bank of Canada can do
something about.
[Interest rates]
So, what's the next move?
[The Bank of Canada building.]
The Bank of Canada is now at 4.25% overnight rate. We think it's done. We think that's the
end of it. Maybe another 25 basis points if they have to, but we are, basically, extremely
close, maybe at the end of the hiking cycle.
The next question, of course, is what's next? When are you cutting? Usually, the lag between
the last hike and the first easing move is relatively short. This time we believe it will be
relatively long, maybe a year, maybe early 2024.
[The Federal Reserve in Washington. Sheets of currency being printed.]
Why? Because the Bank of Canada and the Fed have to make sure that inflation is dead
before they ease monetary policy.
[An aerial image of the Brooklyn bridge in the 1970s. A CIBC branch in Toronto in the 1970s.]
The last thing they want to do is to repeat the mistakes of the 1970s when monetary policy
was eased prematurely and led to another wave of inflation, and therefore, the double dip
recession of the early 1980s. They would like to avoid that and, therefore, they will wait until
inflation is dead before they cut.
And then when they cut by how much? Now, we started this saga at 1.75% overnight rate.
We are going to 4.25%, 4.5%. We rest for a year. And then cut––to where? I say about 3%. A
full percentage point, maybe more, above the rate we have seen before the crisis.
Why? Because in the background there are three inflationary forces that are putting pressure
on overall inflation.
[A low angle view of a Canadian flag in Ottawa. A full warehouse. A woman carries a box of
office supplies.]
We are talking about deglobalization. We are talking about Just-in-case inventories that are
replacing Just-in-time inventory. And clearly the labour market is much tighter now with
vacancy rates in the sky. And the target is the same target, still 2%. So, in order to achieve
the same target with more inflationary forces, by definition, interest rates have to be higher
and the new neutral rate, about 3%, clearly higher than what it was before the crisis.
[The risk of central bank overshooting]
What's the risk? Overshooting. To the extent that supply chain does not behave. To the
extent that we don't see a significant decline in the external source of inflation, that will lead
to a situation, in which the Bank of Canada will overshoot, will raise interest rates to 5%,
5.5%.
[The Bank of Canada crest. A person fills out a job application. People sit in a waiting room.]
That will take you to a real recession, with the unemployment rate rising significantly. Every
economic recession was helped, if not caused by a monetary policy error, in which central
bankers raised interest rates too much.
[The Bank of Canada building.]
At this point of the game, it seems that the Bank of Canada is getting it. They would like to
avoid this risk. Basically, stop at 4.25%. That's the main case scenario.
[The Housing Market]
Let's talk about the housing market now. The housing market is extremely sensitive to higher
interest rates than in any other time in history.
[An aerial view of houses in Toronto.]
It is slowing down. Is it a correction? Is it a crash? Is it a meltdown? In order to answer those
questions, we have to understand what happened to the housing market during COVID. We
know that prices went up by 46% in two years. The question is why? The answer is the
asymmetrical nature of the crisis. All the jobs that were lost were low paying jobs.
[An empty warehouse. A person reads a layoff notice. Apartment buildings in Toronto.
Homebuyers look at listings in the window of a real estate office.]
Young people, renters. That's why rent actually went down during the pandemic.
[A young couple looks at the front door of a house.]
At the same time, homebuyers and even potential homebuyers, their jobs were there. They
were assuming their income was there and interest rates were in the basement. So basically,
we have a situation in which, if you think about it for a second, homebuyers during COVID
got the benefit of a recession, vis-a-vis extremely low interest rates, without the cost of a
recession, vis-a-vis a broadly-based increase in the unemployment rate.
[A street view of a residential neighbourhood.]
There was a sense of urgency to get into the market. So, if you have a sense of urgency to get
into the market, you frontload activity. You borrow activity from the future. We are in the
future. This is not a freefall. This is not a crash. This is a reallocation of activity over time. We
frontloaded activity, now we are resting due to higher interest rates. That's a very positive
development. It's not over.
[A “For Sale” sign on a lawn.]
Now, this is the first correction ever, in which the supply resale activity is actually down.
Usually, you see supply listings going up when the market is correcting. This is not the case
now. Supply is down because people simply are worried about the overall situation, they are
not willing to list, and therefore, supply is down by 10% on a year-over-year basis. That's
protecting prices from falling further. I believe that will change in 2023 and 2024. We will
see supply rising because the fog will clear.
[An aerial view of houses in Toronto.]
But also, some people will be forced to sell given the huge increase in interest rates and the
shock that they will experience moving from variable rates to fixed rates or renewing their
variable rates. And therefore, I see further downward pressure in the housing market in
2023. However, it's not a crash, it's not a meltdown. It's a very healthy correction.
[An aerial view of houses. A plane lands at an airport. A woman waits for a ride at an airport.
A man holds up the Canadian flag. The Ukrainian flag flying over Kyiv. An agent shows a
couple a condo]
So, expect to see further declining sales and clearly declining prices, especially in the low-rise
segment of the market. At the same time, remember, the fundamentals of this market are
still very strong. This year alone, we got 700,000 new immigrants, plus non-permanent
residents, foreign students, and people from Ukraine. 700,000. None of them carries his or
her house on their back. The demand is there and what's happening to supply? We are not
building.
[An aerial view of houses in Toronto. The interior of a semiconstructed apartment.]]
One third of activity is being canceled or delayed because of the fact the cost is rising too
fast.
So, you don't have the supply coming. The demand is definitely there. You don't need to be
an economist to see what will happen two or three years from now. So, the fundamentals of
the market, the lack of supply, a lot of demand still there. But at the same time, the market is
now adjusting, basically reflecting the asymmetrical nature of this recession.
[This video is provided for general informational purposes only and does not constitute
financial, investment, tax, legal or accounting advice nor does it constitute an offer or
solicitation to buy or sell any securities referred to. Individual circumstances and current
events are critical to sound investment planning; anyone wishing to act on this document
should consult with his or her advisor. All opinions and estimates expressed in this video are
as of the date of publication unless otherwise indicated, and are subject to change.
The CIBC logo is a trademark CIBC, used under licence.
The material and/or its contents may not be reproduced without the express written consent
of CIBC.]
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[The CIBC logo is a trademark of CIBC, used under licence.]