The federal government tabled its first budget document in two years on Monday, a 739-page behemoth that outlines Ottawa’s plan to spend $354 billion beyond its means while Canada’s economy struggles to recover from COVID-19.
With its vows to spend $30 billion on a subsidized national child care program and $18 billion on a “green recovery” to help create 1 million new jobs, and to set the federal minimum wage at $15, this budget is an ambitious plan that signals the government’s willingness to spend what it thinks it will take to reshape Canada’s post-pandemic economy.
But while much of the budget’s focus is on the spending side of the ledger, the government did announce a host of new boutique taxes meant to raise a few billion dollars along the way.
The government says it’s moving ahead with a long-discussed digital services tax. Under the current rules, foreign digital services such as Netflix, Amazon and Spotify don’t have to pay the same level of taxes as Canadian companies do on revenue earned in Canada.
Governments on both sides of the aisle have been trying to impose a so-called “Netflix tax” since at least 2013. This year’s budget seems to be finally moving ahead with something concrete.
Regardless of how talks with U.S. tax officials about closing the digital services loophole go, the government plans to impose a digital services tax of three per cent on companies with at least 750 million euros in revenue — a little more than $1.1 billion Cdn.
“While Canada’s hope and preference is for a multilateral solution this summer, whether or not a deal is reached, Canada intends to take action,” the government said of the new tax, which it predicts will bring in about $680 million a year.
But Big Tech executives aren’t the only members of the 1 per cent who should be expecting higher tax bills. Owners of costly playthings like luxury cars, planes and boats are being hit with a new tax — of up to 20 per cent on cars and planes worth more than $100,000, and on boats worth more than $250,000.
The one time sales tax will be either 20 per cent of the value of the vehicle above that threshold, or 10 per cent of the total value, whatever is lower.
“If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat — congratulations. And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity,” Finance Minister Chrystia Freeland said of the new levy that Ottawa says will bring in about $120 million a year.
New tax on vacant homes
There’s also a new tax coming on vacant homes owned by foreigners. Ottawa’s proposing to implement a 1 per cent tax on homes owned by non-Canadians “considered to be vacant or underused.”
It’s not immediately clear what the yardstick will be for declaring a home “vacant” — nor is there much detail in the budget about enforcement. Despite that, the government predicts this tax could bring in up to $175 million a year starting in January, when it’s set to be implemented.
The budget also includes a series of enforcement measures to close tax loopholes identified by the Canada Revenue Agency — such as a crackdown on foreign companies that use “excessive deductions of interest” to bring down their Canadian tax bills. That alone should bring in more than $1 billion a year, Ottawa says.
That measure is coupled with a government effort to target what it calls “cross-border tax schemes” where multinational companies exploit loopholes in various countries to shield some types of income from taxation anywhere in the world.
“These schemes not only erode the tax base that supports programs and services for Canadians, but they also give an unfair advantage to multinational enterprises over Canadian businesses, particularly our small and medium-sized businesses,” Ottawa said of the plan, which it predicts will raise $155 million a year.
The Canada Revenue Agency itself will get a bigger budget to improve its ability to collect outstanding taxes. That move is expected to bring in $1 billion and cost $230 million a year.
Those numbers don’t include the $155 million the federal government expects to raise by cracking down on tax evasion like fraudulent HST/GST refund and rebate claims, or the $150 million set aside to modernize the duty system to “ensure that goods are valued in a fair and consistent manner by all importers.”
New vaping tax, higher cigarette tax
Speaking of duties, there’s a new excise duty coming on all vaping products as of next year — although the government neglected to calculate how much it plans to take in from that. The budget also hikes the tax on cigarettes by another $4 per carton, on top of the current rate of $36.95 on every carton of 200.
Add it all up and Ottawa has laid out a series of new boutique tax measures that should bring in a little more than $3.5 billion a year. They’re all carefully designed to raise money from those who have a lot of it — and not the middle class Canadians the governing Liberals try to court.
That $3.5 billion is almost exactly 1 per cent of the government’s planned $354 billion deficit — which speaks to their modest impact on the bottom line.
“They didn’t do much on the revenue side, as expected,” said economist James Marple.
While the tax changes collectively don’t sound like much against the backdrop of a deficit 100 times their size, Marple did suggest that the digital services tax may be the biggest single line item the government added to the revenue side of the ledger.
“At least that’s a real number, even if it’s small,” he said.
While a tax on vacant homes is likely to get some attention, Marple said he thinks it’s unlikely to have the kind of impact on the overheated housing market its proponents hope it will.
He cites the example of British Columbia, where a vacant homes tax implemented in 2018 has done little to slow rapid house price appreciation. The tax in Vancouver is already three times higher than the one Ottawa is proposing.
“People think there’s a massive amount of homes that foreigners have bought [but] it’s just not accurate,” Marple said.
“I don’t think it’s going to really do much in terms of changing affordability — it’s purely political to show they’re doing something.”