Written by Jamil Ahmed, Policy and Research Analyst
The already uncertain economic picture has gotten worse as the central bank works to control persistent inflation. A “downside scenario” in which inflation becomes more pervasive was produced by the Department of Finance. According to that scenario, Canada would experience a “moderate recession” during the first quarter of 2023. The Fall Economic Statement 2022 was presented before Parliament on November 3, 2022, by the Honorable Chrystia Freeland, Deputy Prime Minister and Minister of Finance. The statement offers basic economic and fiscal planning measures to help Canadian workers and small businesses.
The key takeaways most relevant to the businesses are briefly discussed below:
Lowering small business credit card transaction costs
The government pledged to consult with credit card companies, financial institutions and businesses to reduce and regulate credit card transaction fees for small businesses. According to the economic statement, if the sector cannot reach an agreement in the upcoming months, the government will publish proposed legislative revisions to the Payment Card Networks Act. Business groups have long called for a reduction in credit-card transaction costs, which is a welcome announcement for small businesses.
Tax on Share Buyback
The government has planned to enact a new 2% corporate-level tax on the net value of all categories of share buybacks by a public corporation beginning on January 1, 2024. The new tax is anticipated to raise $2.1 billion over the course of five years while also incentivizing businesses to reinvest revenues in their staff and operations rather than transferring value to shareholders. Budget 2023 is anticipated to have further information. The Inflation Reduction Act, which the American president signed into law in August, has a similar plan. Buybacks occur when publicly listed firms repurchase some of their stock. By lowering the number of shares in the firm, they raise share prices and enhance different profitability measures. However, there are growing worries due to a large number of stock buybacks.
Investment tax Credit for Clean Technologies
The Fall Economic Statement proposes a 30% tax credit for clean technologies, including solar, wind, water, batteries, low-carbon heating equipment, industrial zero-emission vehicles and related charging or refuelling equipment (i.e. hydrogen or heavy-duty electric equipment that’s used in mining or construction) and more. The 30% credit rate will only be accessible if specific labour requirements are satisfied. These requirements have not yet been created but are anticipated to include wages and apprenticeship possibilities. The credit will be granted at a lower rate of 20% if these conditions are not satisfied.
Investment Tax Credit for Clean Hydrogen
The proposed tax credit for investment in clean hydrogen would offer 40% to the lowest carbon intensity tier that meets all eligibility requirements. The maximum tax credit rate will be decreased by 10% if a firm does not adhere to specific labour standards. In the coming weeks, the department of Finance will launch a consultation on how best to implement an investment tax credit for clean hydrogen based on the lifecycle carbon intensity of hydrogen. The US Inflation Reduction Act introduced carbon intensity tiers to guide the level of support to clean hydrogen projects. The consultation will seek input on the following:
- An appropriate carbon intensity-based system for the Canadian context
- The level of support needed for different production pathways in Canada
International tax reform update
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting was agreed on October 8, 2021, and the government reiterated its commitment to implementing Pillars One and Two. In Budget 2022, the administration already reaffirmed its promise. The government hopes that the Pillar One regulations will be accepted and ratified in the first half of 2023 to enter force with start dates in 2024. The administration has not stated if it would follow the declarations made by several other nations and postpone the implementation of Pillar Two standards from 2023 to 2024.
Canada Workers Benefit
The government pledged early payments and a quarterly Canada Workers Benefit schedule to provide participants of the programme with more immediate support throughout the year. Instead of providing this assistance through tax returns, as it presently does, this refundable tax credit would supplement the income of Canada’s lowest-paid employees in yearly increments. The budget update recommends $4.6 billion over six years to give advance payments to people who have already met the requirements.
The fall economic statement proposes making all Canada Student Loans and Canada Apprentice Loans interest-free on a permanent basis. The change, which would start on April 1, 2023, would cost $2.7-billion over five years. In an effort to keep up with the rise of the digitalization of money, the government launched a consultation with the stakeholders on digital currencies. The government is also focused on improvements in the service delivery of government agencies. They are providing more funds to Service Canada to improve Employment Insurance (EI) and Old Age Security (OAS) claims.
Read key takeaways on the budget implementation and tax statutes amendment act HERE.