The Trudeau government's plan is to close (legal) loopholes that it says give a growing number of wealthy, small-business owners an unfair tax advantage over other Canadians. The key argument to this is that the tax incentives targeted by the Liberals are critical for Canada's economically crucial small-business sector. The current tax structure is necessary for doctors, lawyers and entrepreneurs, including those in the so-called middle class, who take personal financial risks when they decide to open a company. One change seeks to eliminate an incentive that enables small-business owners to use their corporations as a way to shift some of their income to family members who face lower personal tax rates, even if those relatives are not active in the Business.
Another change would limit the use of private corporations to make passive investments in stocks or real estate. The proposed change is designed to ensure that taxes on passive investments inside a corporation are treated the same way as those outside the company.
The third reform would limit the ability to convert a corporation's regular income into capital gains, which are typically taxed at a lower rate.
Whats key here is that if the government can't regulate you to the point that you cannot compete with large corporations or in the international marketplace then they want to eliminate all financial incentives as well. We will soon be a country of government workers, bankers and insurance companies!
This is an addendum to one of my posts last week regarding comments made by Navdeep Bains, Minister of Innovation, Science and Economic Development - he hopes that that Trudeau's new budgetary measures will attract "top-notch workers, scientists and scholars from the U.S."
Lets look at the competition he and Canada faces in trying to attract U.S. workers. USA Today published an article this past weekend on "Tech Job Migration" (the link is at bottom of Blog. The salient points from this article are...
Many Tech startups and even existing "Big Players" are relocating to cities like Phoenix, Tucson, Houston and Denver for reasons of lower operating costs and an increased ability to attract new talent based on the lower costs for housing and lower costs of living.
Lets take a look at the attraction for a potential tech employee and what they will choose Phoenix for example over Ottawa.
Taxes & Cost of Living
An individual in Phoenix making $80K will have a tax rate, before deductions of 17.9%. The save individual in Ottawa will have a personal tax rate of 31.5% (nearly double). In Phoenix the worker will be able to purchase a 2,000 sq/ft home, within a 30 minute commute, for approximately $250K. The same home within a hour commute of Ottawa will cost approximately $650K. The employee in Phoenix will only require a downpayment of $12.5K with 100% of the mortgage interest being deductible. The Canadian will need $65K downpayment to obtain a reasonable mortgages rate without CMHC Insurance. Taxes on the Phoenix house will be $1,900/yr whereas the property taxes on the Ottawa home would be $6,000/yr. Utilities, gas and other costs of living are approximately 17% higher in Ottawa than in Phoenix (https://www.expatistan.com). HST tax in Ottawa 13% in Phoenix 8.6% (only on goods, services not taxed). Health Care, the Ottawa employee will receive "Free" Healthcare, the company will, in all likelihood, have a Benefits package for the employee. As of January 2016 U.S. employers are required to provide adequate health insurance coverage options for employees. At a minimum the Phoenix company will provide the employee with 70 percent/30 percent. Out of pocket premium expense (fully deductible) for the employee would range from $1,118 for single or individual employee coverage; $2,824 for employee-plus-one coverage and $4,236 for family coverage.
Will all the above taken into consideration the Phoenix employee will have approximately $38,000 more for discretionary spending per year than the Ottawa employee!
Get ready for the stampede Minister Navdeep Bains!!!!!
Bombardier is in the news again so I’m jumping in with both feet. The federal government says it will provide $372.5 million in interest-free loans to Bombardier. This is short of the $1-billion that they have been asking for however, over the years, Bombardier has received roughly $1 billion in federal support. Last year, Bombardier received a $1-billion US investment from the Quebec government in exchange for a 49.5-per-cent stake. In August 2016 Bombardier handed out pink slips to aerospace employees in Montreal as part of its efforts to trim 7,000 workers over two years.
According to their most recent 5 year summary revenues have declined from a high of $20B in 2014 to $16B in 2016, approximately the same amount as in 2012. In the same time their EBIT has declined from $666M to -$58M with the biggest loss in 2015 of -$4.8B.
In addition to the Federal loans the media was also in an uproar as to Bombardier ‘s plans to offer hefty bonuses to six members of its senior executive team in the amount of $32 million in bonuses. In response to the backlash, the company made a concession late Sunday evening and announced the new plan will be to delay — but not reduce — the payouts to executives, as long as the company hits certain performance targets. 'I can understand why people were so angry,' CEO says in recommending deferment plan.
While the company has yet to repay all the money its borrowed from the federal government in the past its founder Joseph-Armand Bombardier’s descendants have collected approximately $150 million in dividend payments from Bombardier over the last decade as a result of the company’s dual class share structure.
Since half of the bonuses are now delayed to 2020 how many more times do you think they will go to the Provincial and Federal governments for additional funding.
Now I have run both Public and Private companies. When we, like many others, struggled to compete and increase sales there where no government monies made available to us. We had to go to the banks and if they didn’t like what they saw then we, as directors and owners of these companies had to make personal guarantees for the loans. We also had to have a good business plan and a detailed use-of-funds that would be monitored monthly by the banks “Special Loans” department. One slip up and all monies could be called in. In my experience in the high-tech sector I saw many companies go under resulting in thousands of lost jobs. The only interest the governments had was to make sure their taxes were paid before any monies where distributed to others, including employees.
Why Canada Will Not Let Bombardier, Inc. Fail
Bombardier is competing in a market, aircraft, with the likes of Boeing and Airbus both who are heavily supported via government loans. It is reported that Boeing has received over US$450 million in federal grants and tax credits since 2000, as well as more than US$64 billion in loan guarantees over the same time. Boeing has also received more state aid than any other corporation.
Bombardier employs roughly 45,000 people in Canada with over 18,000 of these in Quebec, and salaries are typically quite high. Many of these people would have great difficulty finding new jobs at the same level of compensation. Suppliers and other businesses would also fail as a result. There would be both a federal and provincial loss of tax revenue. Unemployment benefits, retraining and the potential loss of trained workers to the U.S. would also be expensive.
The federal and provincial governments learned a big lesson when Nortel collapsed.
What will the Canadian Taxpayer have to do?
Basically suck it up and live with it like we have for the past 5-10 years. Bombardier will continue to put its hand out and lean on governments for support. Executives will not only get the 2016 bonuses, well before the 2020 deadline, but will also continue to add additional bonuses and incentives year over year.
Today President Trump's signed an executive order on American energy independence reversing many Obama era environmental initiatives. Trump's executive order will roll back at least 10 major Obama environmental regulations thus providing the framework for a new Trump-era energy framework that will emphasize more production, more jobs and fewer environmental safeguards. The order makes good on Trump's promise to end what he called a "war on coal," and to bring back coal jobs.
According to the Union of Concerned Scientists the United States is often noted as the being the most significant contributor to historical emissions of global warming pollution. Most of these emissions occur when power plants burn coal or natural gas and when vehicles burn gasoline or diesel. China is rated #1, the USA #2 and Canada ranks #7 according to the 2008 study. China and the US together produce around 45% of global carbon emissions
China, the world's biggest polluter however, the country has not set a specific target for cutting emissions of the gases, mainly carbon dioxide. Recently, a cloud of industrial pollution caused by China’s factories was so large and dense it was visible to satellites.
Over the period 1948 to 2013, the average annual temperature in Canada has warmed by 1.6 ° C. New research reveals that during our cold-weather season, pollution in China is altering weather patterns in the United States and Canada.
Meanwhile in Canada the Federal and Provincial Governments are placing the responsibility, read taxes, on the heads of the average Canadian citizen. Most recently, following BC’s lead, the Alberta and Ontario governments have added a carbon tax on gasoline and virtually eliminated coal fired electric plants. As if the average Canadian can limit their use of their automobiles or turn off electrical appliances significantly enough to affect climate change. Four-fifths of Canadians will live in provinces with such taxes in 2017, and in 2018 all Canadians could be paying a carbon tax. The tax, we are told, is revenue-neutral, with proceeds used to cut corporate and personal income taxes.
In fact, Canadians breathe easier than most people in the world, ranking third in an-air quality index released by the World Health Organization.
If we look at the following list of Worse Polluting Industries most do not have a large presence in Canada.
Coupled with Trumps promises to reduce business taxes from 35% to 15% introducing carbon taxes, additional manufacturing regulations and making Canadian energy more expensive is a no-win plan against Trump’s America. Businesses will invest there not in Canada.
Todays Blog is inspired by comments made by Navdeep Bains, Minister of Innovation, Science and Economic Development - he hopes that that Trudeau's new budgetary measures will attract "top-notch workers, scientists and scholars from the U.S.
Are you kidding me? What are we doing to keep home-grown talent? It is estimated that approximately 350,000 Canadian Engineers, researchers and academics currently live and work in the US. While the majority are in California there are also large populations in Arizona, Florida and Texas.
Phoenix is currently billing itself as the "new" silicon valley and actively recruiting in California. They are boasting that there are over 4,000 jobs available with major employers such as Honeywell, Intel and other "Tier 1" employers. There pitch is built around good wages, low taxes and affordable living with good housing available in the mid $200K. Add to this a low cost of living and great weather they have a strong pitch.
Other than the "Sky is Falling" hysteria surrounding Trump what does Canada have to offer? Minimum job opportunity - over 10,000 engineering jobs have been lost in the oil patch in the last three years, minimal high-technology opportunities, 44 jobs in Waterloo ON - $50K+, low pay, high taxes, high cost of living and sky high home prices. Compare this to 301 posted jobs in Phoenix - $50K+, comparable pay, low taxes, medium cost of living and low cost housing.
Bottom line is that you can put up with a lot of "politics" if you personally enjoy a comfortable standard of living.
I’m writing this post as a follow-on to one of my earlier posts on Canadian ExPat’s. It is prompted by a recent CTV News article titled “Howie Mandel on hosting Canadian Screen Awards, and why he 'resented' leaving Canada”
Now I remember the “Canadian” Howie Mandel quite well having seen him and fellow Canadian Jim Carrey perform at Yuk Yuk’s in Toronto way back when. You will know how far back because that’s when we saw Keith Morrison do the local Canadian news, Alex Trebek hosted the Canadian Reach for the Top, John Roberts was a VJ on the Canadian Much Music, Kenny Rogers fronted the CTV Canadian house band The First Edition and Lorne Michaels was doing the Canadian Hart & Lorne Terrific Hour. William Shatner was already long gone! What do they all have in common? They all bailed out of Canada and are now Expats or US Citizens.
The intent of this post is not to condemn these people it’s to praise them, they figured out the Canadian Tax system, cost of living and limited opportunities (high paying) early in their careers and made, what I’m sure were wise decisions to move to the U.S.. What I don’t condone however is the false Canadian Flag waving and praise for a country that they bailed on every time they are interviewed– call a spade a spade. here to edit.
Many will tell you that they left Canada for opportunities. Howie is quoted in the article as saying "Once I made the decision that this is what I wanted to do for a career and for my life, I realized it's really hard to have a comparable career financially (in Canada)." Now lets get one thing clear from the get go, you can reach virtually any U.S. city from a Canadian airport every day of the week in a max of six hours. If a Canadian entertainer had a show, gig or otherwise they could get to that city without an issue. Not a cheaply as they could from within the U.S. but never the less it could be done. If a Canadian actor was filming a show for an extended period they could stay in a hotel or rent a place, hell they could even own a U.S. condo or home that they could stay in while working. (just like a lot of snowbirds do). A U.S. Visa would allow them to work there with no issue it would just mean that they would pay taxes in both jurisdictions. Canada and the U.S. The Canada/U.S. Income Tax Convention was signed in 1942.
U.S. Citizens however are taxed at a different rate than Canadian Citizens to the point that a U.S Citizen, paying U.S. taxes working in Canada will keep a lot more of their money in their pocket than a Canadian Citizen, working in the U.S., paying Canadian taxes. It’s a substantial difference. This is why, I believe, there is an entertainment and professional emigration south of the border. Can you blame someone for wanting to keep more of their money, isn’t that what we would all like to do?
I’ll end on another Howie quote "I ring the bell loud and clear every time I'm on something, that I was born and raised in Canada and I'm Canadian," said Mandel. Maybe he should add I just don’t want to be taxed to death in Canada!
This week a number of Canadian statistics were released; Retail Sales fell in December by 0.5% with 9 of the major 11 sectors registering declines including automobiles. The Canadian consumer price index rose .9%. Inflation now sits at 2.1%. Despite the decline retail sales however posted a 4.5% growth. In a previous post I discussed the growth of a couple of Canadian retailers. Again this is simple math; they are either selling to more people or they are increasing their prices within the existing base! Not too hard to figure out.
The annual inflation rate took its highest jump in the last two years, the leader? Gasoline! The price of which has increased over 20% - the largest increase in six years. How did our friends south of the border do? Well they don't have an issue as their gas prices decreased at the pump over the same period. Oh, and no they didn't see a carbon tax either!
This POST will build on one of my previous posts re all the Canadian expats that are now living in the US. In a July 2013 FP article titled Why Is Canada Failing at Tech it was estimated that 350,000 Canadian technology professionals were living in the San Francisco Bay area. The Reason? "a veritable lost generation lured by good, high-paying tech jobs and access to collaborators and capital." It's not getting any better, in fact most Canadian proffesionals would gladly head south if the opportunity arose
The following are excerpts from the February 16th. George Takach, senior partner at McCarthy Tétrault LLP article Canada's Patent Deficit....
"relative to our key trading partners, and especially the United States, we are not as innovative and have not invested as heavily in information technology and other productivity-enhancing devices, systems and methodologies (such as state-of-the-art e commerce platforms). This gap – this deficit – threatens our future prosperity. For example, roughly 3 per cent of our workforce is made up of people in information and telecommunications jobs. In leading digital countries, that percentage is between 6 and 8 per cent.
How dismal is the state of patent-filing in Canada? Even the North Koreans are outperforming us! We are simply not among the top 20 countries in terms of patents filed per capita. Read the full article here.
Many Canadian companies state that finding qualified engineers and programmers has always been a challenge. It’s only getting harder. Forecasts indicate that in a decade there will be a staggering 1.5 million jobs unfilled in Canada
What is our Federal and Provincial Governments doing to keep our talent in Canada once educated? Oh ya, take 53% of their income in taxes and more.
Global gas prices are on the rise—about 4.4 percent on average in Q4 2016. It’s a big jump, but the burden of filling up is felt differently in every country. Bloomberg ranked 61 countries by three economic measures; The average price of a gallon of gas at the pump, Affordability, the average daily income and Income Spent.
Canada ranks #17 in Price at the pump, a gallon of regular gasoline cost $3.46 US/Gallon or $1.20 CDN/LTR. In Affordability we are #9. It takes 3.07% of a persons daily wage (before tax) to purchase a gallon of gas.
In Income Spent we rank #58. The average Canadian driver will spend 2.75% of their total income on gasoline. Only Greece, Mexico and South Africa rank worse!
Our politicians want to be seen as leaders on global warming by implementing carbon taxes on businesses and consumers that, as of January 1st. will affect these numbers negatively more than likely pushing us past Greece.
It costs about $41.00 a barrel to produce oil in Canada. Our southern neighbours can do it for $36.00 a barrel and in Saudi Arabia it's less than $10.00. Oil is currently selling for Oil sales account for approximately 8.9% of Canadas GDP. It is estimated that Canadian producers looses about $3.00 per barrel combined oil sands/traditional methods.
Canada has the world’s third largest oil reserves, but refineries in Eastern Canada still import around 80 per cent of their oil supply. Canada spends approximately $20 Billion Dollars on foreign oil. Maybe we should focus on an Eastern Canada Pipeline for our own use rather than the Keystone Pipeline that will provide the US with oil at a loss to Canadian producers. Would prices at the pump come down, probably not, but at lease we would be using our own oil.
I am a concerned Canadian that is fed up seeing companies and people leave Canada due to the high cost of doing business and living.