The 2021 Federal Budget with Guest Host, Guy Anderson | E059

A brief overview of the 2021 Canadian Federal budget.

In this episode, host Jason Pereira discusses the Federal Budget with Guy Anderson. He is a portfolio manager mainly focused on financial planning. 

Episode Highlights:

  • 01.37: Jason shares that they have the first budget in two years from this government. 

  • 02.14: Guy agrees with Jason introduction on the Federal Budget. He says that it was indeed huge, it is $101 billion in new funding initiative. 

  • 04.10: Jason points out with introduction of child care program, we can expect an expansion in the workforce and also in the number of work hours. 

  • 05.45: Jason talks about numerous programs that were going to expire in June. They have now been extended. Canada Recovery Caregiving Benefit, Rent Subsidy and Wage Subsidy for Businesses are some of the benefits that were extended. 

  • 06.51: Jason talks about the $450 million VC funding pool being put together for the next 5 years. Number of start-ups leading by women or people of colour being funded by the VC is extremely low in number. 

  • 08.10: They discusses the cut in tax for businesses that are working on reducing emission.

  • 9.28: Jason shares his views on minimum wage increase. He thinks that this is not a huge headline unlike in the US. 

  • 10.40: Guy points towards the other side of the it i.e.; increase in hiring programs. 

  • 11.24: They discuss what the budget means to life science and how that affects business owners. 

  • 12.00: Guy is a little surprised on the bump-up in the senior security amount. 

  • 15.42: Jason sees a big boost in the re-sale market of luxury cars. 

  • 17.22: Guy talks about the vacant home tax. Jason discusses how property tax in this country is low as compared to others.

3 Key Points:

  1. Jason and Guy discusses the cost benefit of the budget, also talks about the national day care and early child care program.

  2. They talk about what the budget means by COVID relief?

  3. Jason says “There is not much to talk about tax as the government played a bit safe on that front.” He breakdown the tax breakages and also talks about the new taxes.

Tweetable Quotes:

  • “The fact that money is now being allocated to women and people of colour to empower them is a great idea.” - Jason Pereira

  • “Due to COVID, small business have been really hurt.” - Guy Anderson

  • “Enjoy the spending bonanza budget, next one will probably be not so friendly. - Jason Pereira

Resources Mentioned: 

Transcript:

Producer: Welcome to the Financial Planning for Canadian Business Owners Podcast. You will hear about industry  insights with award-winning financial planner and entrepreneur, Jason Pereira. Through the interviews  with different experts with their stories and advice, you will learn how you can navigate the challenges  of being an entrepreneur, plan for success and make the most of your business and life. And now your  host, Jason Pereira. 

Jason Pereira: Hello, and welcome. Today on the show, I brought back my co-conspirator sometimes, Guy Anderson, to  actually interview me this time. And we're going to have an open discussion about the 2021 federal  budget and the impact specifically on business owners. And with that, here's my conversation with Guy.  Guy, thanks for taking the time. 

Guy Anderson: More than happy to, Jason. 

Jason Pereira: So Guy, I understand you've been on the show before, but just let you plug yourself quickly. Tell us a  little bit about it as you do. 

Guy Anderson: So I'm a portfolio manager with Align Capital Partners here in Toronto. I focus more on financial  planning and that's essentially it. Been in the business for a good dozen years or so, and just generally  focused on helping people. 

Jason Pereira: Excellent. So to get started, this is basically the time of year where we pass go and the rules change up.  [inaudible 00:01:20] Essentially, I like to refer to taxation as a game of Monopoly where the rules change  every time you pass go, which is exactly essentially budget deck. So we had our first budget in two years  from this government and it was a doozy in terms of size, over 720 some odd pages with more programs  than I can even count. I think someone estimated over 200 different program announcements, many of  them quite honestly minor. And quite frankly, this is an election budget. Let's be honest. They were  clearly looking to... If you hear anything in the background, my son is doing gym for remote  kindergarten. So there's that. So, as I was saying, there was a little bit of something for everyone. We're  not going to cover everything. We're going to cover the bigger initiatives specifically today and hone in  on the ones that particularly impact business owners. So with that Guy, let's get started. What are we  tackling first? 

Guy Anderson: Yeah, so you're right, Jason. The budget was huge from a number of different standpoints. There was  over $101 billion in funding initiatives announced in the budget. I think 

Jason Pereira: Most of it we don't have, but continue.

Guy Anderson: Right. Some have suggested it's actually more than 140 billion over the course of the five or six years  that some of the initiatives are scheduled for. So with that in mind, let's talk about some of the biggies.  One of the big ones that the liberals have been talking about for quite a while is a national daycare or a  national early childcare program. What are your thoughts on that? 

Jason Pereira: [inaudible 00:02:43] a long time ago. So before people jump down my throat, the cost of this thing,  which is estimated to be $60 billion over the next five years, let's look at what the cost benefit is. So  sorry, not 60 billion. It's more like it's 30 billion over the next five years. They're looking for funding from  the provinces to match that is what they said. So good luck there. But the goal is to copy what Quebec  has done. So Quebec has $10 a day per child daycare, which for someone like myself, who I kid you not,  spends over $20,000 a year in childcare, as I grit that through my teeth and can't deduct the full amount,  basically that would be a massive, massive savings. So the idea is to get there by 2026, I think was the  year where they get the $10 a day daycare, but to start targeting reductions of 50% of costs by the end  of next year and slowly get there. So this is not cheap, but here's the benefit. 

Jason Pereira: First off, think about what I do with the rest of the money that I'm not spending on childcare, that's  economically stimulus. But the second piece is talk about empowering women in the workforce. Now, as  we know, disproportionately, the childcare falls specifically on the female gender. Now there are plenty  of stay-at-home dads I know too, we do a wonderful job, but the reality is that if you look at the cost of  childcare, like I just said, over 20,000 for myself with two children and one of them is in school full-time,  the reality is that unless you're earning really good money, it typically in a lot of cases, if you have more  than two kids, it makes sense for one spouse to stay home, in which case, now you've taken someone  out of the workforce. So the fact that we're expanding our workforce and we're also increasing the  number of hours they can actually spend at work because they don't have to race home to pick up their  kid because they can't afford childcare, think about the economic expansion there. 

Jason Pereira: In fact, there's been studies done that show that the Quebec model alone generates between 1.8 to  $2.5 per dollar spent. So we're talking about a net positive here, not a net expenditure. So frankly I think  as a nation, we should have implemented this a long time ago. 

Guy Anderson: I think you're right. I think some of the studies I read indicated that this would be an initial hit. It would  be capital expenditures is always hard to do initially, but over the course of five or six years, it's the  payback is actually going to be dramatic in the stimulation to the economy itself. So it's going to be net  neutral in five or six years when, like you said, the spouse that's staying home to care for kids is likely  going to stay in the workforce a little bit longer rather than staying home to care for kids. So, it could be  a very good positive, especially for business owners where they might lose an employee or something  like that to stay home and look after kids. Right? 

Jason Pereira: Exactly. That's not to say that people aren't going to choose and opt into staying at home, that's fine.  They can do that, but it's more so we don't want a society that presses them to do so out of economic  need, that is reduction of our highly skilled and educated workforce. That makes very little sense. 

Guy Anderson: So let's move onto, in my notes, I have it here as COVID relief. Now that's a big topic, obviously over the  last year or so. So why don't you expand on that and what the budget means to COVID relief? 

Jason Pereira: Yeah, so the good news is that, good news, define good news in the COVID environment for business  owners, so the reality is that we had a number of programs that were going to expire come I think it was  the end of June and essentially they've been extended. So that includes the Canadian emergency wage  subsidy, which business owners are very familiar with as well as the Canadian emergency rent subsidy in  addition to the Canada recovery benefit, which specifically targets self-employed individuals not covered  by EI. So all three benefits are being extended to, I believe it's until September of this year. However,  there will be a reduction to some of these, specifically the match rate on CEWS, the Canadian  emergency wage subsidy, which will reduce starting July. So they're starting to wind down in  anticipation of the economy starting to ramp up based on vaccination rates, which we'll stay away from  commentary on that. 

Guy Anderson: Yeah. We had a little discussion before recording about that. So let's move on. 

Jason Pereira: Yeah. Real easy to book an appointment. 

Guy Anderson: Okay. So there's also a line item in there in regards to venture capital funding and specifically there's  some initiatives for those of color and women in the workforce. Can you speak to those two? 

Jason Pereira: Yeah. So there is a $450 million VC funding pool being put together over the next five years. Those were,  as you just mentioned, people of color and women were targeted specifically for this. And I got to say  this one's data-driven. The number of startups that are funded by VCs that have people of color or  women leading them is a shamefully low number. And this is something that will honestly be talked  about by female and other people of color when they go to pitch VCs is that they just do not get the  same time and attention sometimes as the men do. So call it inherent bias, call it whatever it is.  Sometimes it's also just, I think part of they just see the numbers and they think they're just not going to  get it. So there's somewhat of a chicken and egg scenario. So the fact that we are throwing money at  this part of the economy and trying to empower these people with bright ideas, smart idea. 

Guy Anderson: Yeah. No, I think it's brilliant. I honestly think it's been long overdue like the childcare stuff, but it's long  overdue. So there's a lot of similarities between this budget and that in the US budget from what I can  tell actually as well, specifically as it relates to green energy and this line item in the budget is the rate reduction for zero emission technology manufacturers. So what does that entail for business owners  here? 

Jason Pereira: Yeah, what that means is that if you're a business that works on reducing emissions, then you are now  going to pay less federal tax. They are actually cutting it in half. So the small business tax rate on the first  half a million dollars of income for a business in Canada, the federal rate is 9%. That is being cut to 4.5.  Anything beyond that is 15, that is being cut to 7.5%. So that is not permanent however. That is for the  next several years and I think being phased out entirely by 2028. So you have a couple of years of  runway where you get to basically save a little bit of money. They're hoping that some provinces may  match suit, but I'm not holding my breath. 

Guy Anderson: I think 2028 is right for that for the 4.5 and 7.5% rate. But I think even after that, it extends a little bit  into 2032 or something, but [crosstalk 00:08:45] 

Jason Pereira: Yeah there was a little bit beyond that, but the big reduction was the next couple years. [crosstalk  00:08:50] And honestly the reality is who knows, what government's in power, how long does this thing  last? What's interesting is that we're not used to seeing tax policy that comes with sunset provisions in  this country. And for the first time that I've ever seen it, it's happened. They've flat out said that this tax  rate will only last for X number of years. So it's very different. US policy for various reasons have to come  with sunset provisions. That's not common in Canada. 

Guy Anderson: Yeah. Fair enough. Right. There's also some stuff in the budget regarding hiring programs, helping  business owners hire employees. And while you're at that, maybe you can also speak to the minimum  wage increase as well. 

Jason Pereira: Yeah. So in keeping with themes across North America, specifically the US who is introducing a $15  federal mandated minimum wage, the feds here are doing the exact same thing. Now that said, that  depends on what province you're looking at, at how far away we are from that. So, Ontario is at 14  something I think. There was supposed to be a 15, but the new government nixed that. Well, it looks like  it's being forced upon them anyway. So that is going to lift tens of thousands of people into a higher  income and more of a living wage. So I would say that is not a huge headline like it is in the US where  minimum wages can be very low. We're talking some of them, I think borderlines don't even have them.  So it is what it is. 

Guy Anderson: Okay. So would you say that the hiring program helps to offset the higher cost to business owners then?  Or is it with the wage increase, the $15, coming out of COVID, a lot of small businesses have been really  hurt so with the raise of minimum wage to 15, although it's probably not too significant, do you think  that the hiring program that's identified in the budget will help offset that?

Jason Pereira: Yeah. So the other piece of this is the hiring program. So basically in order to encourage people to start  hiring people back now that COVID recovery is happening, there is a new hiring program in place that's  going to help subsidize with the 50% of cost I believe in conjunction with that minimum wage. We'll look  at the details a little bit better, but that is being done in conjunction with the Canada emergency wage  subsidy. So that will run from June to November. So beyond what is normal for CEW is they're going to  be basically helping you hire back people. 

Guy Anderson: Yeah. Jason, there's also an initiative within the budget regarding life sciences and specifically one of the  sub-titles within that is vaccine development. So can you speak to what the budget means in regards to  life sciences and how that affects business owners? 

Jason Pereira: Yeah. So $916 million has been earmarked for the next five years for life sciences and bio  manufacturing. So they're going to be funding research at post-secondary institutions, hospitals, and  grants to support life sciences companies regarding stem cell and big surprise, vaccine development. I  think COVID exposed how much our pants were down on this one. And it looks like they're trying to pull  them up. 

Guy Anderson: Very good. All right. So onto some of the more planning items, tax and old age security initiatives. So it  was surprising to me at least that they announced something to do with old age security, a bump-up and  an increase in old age security for those over 75. Can you speak to that? 

Jason Pereira: Yeah. Seniors vote. What can I say? Yeah. So the bump-up to old age security is a one-time bump-up of  $500 in June of 2022. And I think that's to reflect the fact that this is starting mid-year as opposed to  fully at the beginning of the year, but the bump-up going forward will be 10% more in OAS after age 75.  So essentially from 65 or 70, depending on when you start, after 75 you get the normal one and then a  10% bump-up from there, which only makes planning a little bit more complicated, which should,  interestingly enough, also result in a correspondingly higher OES clawback threshold, whereby you will  give back everything unless of course they adjust the clawback rate, which we've yet to see if they're  going to do that. 

Guy Anderson: It's going to be interesting, but like you said, seniors vote and it's pretty clear that's the reason behind  that one, I think. 

Jason Pereira: Yep. 

Guy Anderson: Anyway, so the budget itself, we talked about the size of it, 101 billion, 140 billion over time. There's  very little that I saw in tax increases. In fact, there's a few things that I think you and I were both looking for, not anticipating for it, but luckily the capital gains tax rate wasn't increased. There wasn't a tax  increase on the principal or a tax introduction on the sale of your principal home. But there were some  taxes introduced. So can you speak to some of the taxes specifically around luxury tax and digital tax, et  cetera? 

Jason Pereira: Yeah. So let's face facts, no one looking to go into an election ever raises taxes. The reality is if this had  been a majority government in its first or second year, then they would have totally slammed that down  our throats. But instead they're trying to play nice. They want to basically stay away from us. So there  wasn't really a lot to talk about on the tax front. A lot of spending, not a lot of raising. The one,  depending on what you consider amusing or not, so one of them is let's call it a 1% tax where they went  after luxury cars and boats, which I think is hilarious to target, but the way it works is any car over  100,000 or any boat over 250,000 is now going to be subject to a new tax as of January one. So if you're  looking to buy a car, a boat, might want to move fast. At least get a luxury car or boat. And the way it  works is any amount below that threshold. 

Jason Pereira: So if you buy something over 100,000, the first 100,000 is going to have an additional tax of 10% in  addition to any HST. And then anything over 100,000, it will be 20% tax. And at 250, same thing. Above  and below. There are also new taxes or what I like to refer to as the Google and Facebook tax, which is  known as a digital services tax. So it is a 3% tax on revenues for companies that rely on digital services  and content that are developed by Canadian users. This will only apply to companies whose revenues  exceed 750 million or more. So it's really targeted at big tech and not the first of these I've seen in the  world. I believe France passed something similar, but there's a lot of let's face it. These companies will  move money around from country to country until it ends up in Ireland and pays nothing. I think there's  a big push towards taxing revenue instead of income within a country, because that is a cleaner way of  collecting it. 

Jason Pereira: So those are the two big tax notes, believe it or not, which I wouldn't say are that big. However, there is  another one coming specifically on vaping products, which we have not quickly, we have not discovered  yet. So they've said they're going to do it. They just haven't said what it'll be. 

Guy Anderson: Increasing the tax rate on cigarettes as well, by $4 a carton, I understand, and like you said, the vape  hasn't yet been disclosed. So what you're saying there, Jason, is I should ramp up my purchase of my  plane before the beginning of the year then. 

Jason Pereira: Yeah. Yeah. I think this affected planes too, didn't it? Yeah. That's right. It was planes and boats over  250. My correction. Sorry. It's hard to keep track how many of those I have. I see a big boost for the  resale market of luxury cars. I also see a bunch of cars that will be designed to be sold for $99,999. So  we'll see how that goes. 

Guy Anderson: It's interesting. As soon as they announce one sort of threshold, the market's going to react and they're  going to respond, right? Yeah. 100,000 is just a arbitrary number anyway. So yeah, if Tesla's selling a car  for 106,000 or something like that, they're going to make it 95 or something. Right? 

Jason Pereira: Well, they may not, but if they have a base model package with an upgrade package and that upgrade  package is going to make it go to 101,000, that upgrade package just got modified to go down to 99,000. 

Guy Anderson: Exactly. Right. So this is interesting because this is the first time I think in Canadian history that we've  actually had a wealth tax, am I right on that? 

Jason Pereira: No. Consider, if you're talking about an asset-based tax or then we're talking, just think about property  tax. [crosstalk 00:16:31] Property tax is a wealth tax. You're talking about let's call it a luxury tax or  luxury sin tax, so essentially sin tax are things that they basically put on stuff that is negative, that  they're trying to prevent people from doing like cigarettes and whatnot. So you're specifically targeting a  specific type of consumption. This is the flip side of it. We're not trying to discourage it, but we're going  to say, but it's like, hey, you want that luxurious thing, guess what? We are going to tax that very highly.  That is a very common form of consumption tax within developing countries just because their tax  reporting collection schemes are a little less robust than ours. So it's not unusual in other countries,  you'll see 100% taxes on luxury vehicles. We have not done that. This is our first as far as I know. 

Guy Anderson: Right. So in some respects, it is unique. But so one last tax that we were talking about before recording  here is the vacant home tax. 

Jason Pereira: Oh yes. That's right. 

Guy Anderson: So that's been discussed over the last number of years with the number of foreigners owning properties  that are not being utilized, they're just sitting empty. So can you speak to that tax there? 

Jason Pereira: Yeah. So this is the one market cooling thing that they did in the budget. I don't know how effective it's  going to be. So Vancouver already imposed a vacancy tax on their property because we all know the  legends of [inaudible 00:17:47] condos in Vancouver. So they did theirs I believe 1% and they've been  looking at increasing it. Toronto has been looking at creating one of their own. The feds are now doing a  1% tax on vacant or underused, underutilized tax. I've yet to see the definition of underutilized or how  they're going to enforce that. But the entire idea is that if we have foreign investors who are just  basically buying and holding on speculation, that is not good for the capital inventory of the country and  it drives prices higher. So what we're doing is that essentially is we're making it more painful. 

Jason Pereira: So property taxes in this country are comparatively astonishingly low compared to other jurisdictions.  And it's one of the reasons why it's probably attractive to hold onto that stuff here. So now if we just  make it a little bit more painful, then maybe it'll go away to some degree or not do it as much, or at least  rent it out. So do the math, right? If you're in Vancouver and let's say Vancouver goes to 2%, and then  you have the federal tax at 3% and then you've got property tax, which is probably less than 1%, that's  almost a 4% headwind. [crosstalk 00:18:45]. 

Guy Anderson: Million dollar property. 

Jason Pereira: Exactly. And if it's vacant, geez, it's a 4% headwind. And I think in certain jurisdictions, especially the  hotter ones to get, those municipalities take action to do their own taxes. This is going to help. This is  definitely going to help. Is it going to solve affordability? Not a chance, but it's not going to hurt. 

Guy Anderson: Yeah. It would just [crosstalk 00:19:05] increase the coffers of the government. Like many of the  announcements, the details are yet to be fleshed out, but renting it out for a month of the year, does  that satisfy the vacancy, getting around the vacancy rule? Or do you have to rent it out for six months or  something like that, in which case, foreigners just use an Airbnb to address that? Who knows? It's like a  lot of the other initiatives, yet to be seen. Right? 

Jason Pereira: Exactly. 

Guy Anderson: Very good. So is there anything else you wanted to cover off? There was, like you said, 200 some odd  items identified in the budget. I think we hit on most of the bigger ones, the ones that are more specific  to the business owners, et cetera, but anything else you wanted to cover off before we say goodbye? 

Jason Pereira: No. I think we covered it quite well. I think the reality is that we tackled pretty heavily the ones that  specifically focus on business owners and that supports the theme of this podcast. So Guy, thank you for  coming on and helping out. And yeah, so everybody else, enjoy this spending bonanza budget. The next  one will probably be not so friendly. 

Guy Anderson: Agreed. And thanks for having me on again, Jason. I appreciate it. 

Jason Pereira: So that was today's podcast and hope you enjoyed that and hope you got a little bit more informed  about today's budget. This of course was a superficial overview. For greater information or more  information, you have to speak directly to your account. As always, if you enjoyed this podcast,  [inaudible 00:20:22] on iTunes, Stitcher, or wherever you get your podcasts. Until next time, take care.

Producer: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm  catering to high net worth individuals, business owners, and their families. To learn more, go to  woodgate.com. You can subscribe to this podcast on Apple Podcast, Stitcher, Google Play, and Spotify,  or find more episodes at jasonpereira.ca. You can even ask Surrey, Alexa or Google Home to subscribe  for you.

FPCBOJason PereiraBudget