Canada | Federal Budget

Federal budget puts focus on housing affordability, skills training

First-Time Home Buyer Incentive, Canada Training Benefit and investments to combat tax evasion among measures announced

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Centennial Flame in front of Canadian Parliament Building Peace Tower on Parliament Hill in Ottawa, Canada“Budget 2019 is the next step in our plan to invest in the middle class and build a strong economy that works for the middle class—and for all Canadians,” said Finance Minister Bill Morneau (Getty Images/Orchidpoet)

Housing affordability and skills training were at the forefront of the federal budget, which Finance Minister Bill Morneau unveiled in Ottawa earlier today. The pre-election budget also includes support for seniors, broadband investments for rural Canada, measures for young Canadians and addressing the costs associated with prescription drugs.

“Budget 2019 is the next step in our plan to invest in the middle class and build a strong economy that works for the middle class—and for all Canadians,” Morneau said.

The budget also contains further investments to combat tax evasion and includes measures aimed at cracking down on money laundering.

However, even though the government is making investments to grow the economy for the long-term while it brings the books back toward balance, the budget does not include a date for a return to balanced budgets.

“Canada needs a plan for fiscal stability, one that establishes a target date for a return to balanced budgets over the medium term,” says Joy Thomas, president and CEO, CPA Canada. “The government must demonstrate that it has a plan to eventually rein in spending and address the persistent deficits. This would greatly assist in creating business confidence and minimizing the burden on future generations.”

HOUSING AFFORDABILITY

In an effort to make home ownership more affordable for first-time homebuyers, the federal government announced a First-Time Home Buyer Incentive, available to those with household incomes under $120,000 per year. This incentive would see the Canada Mortgage and Housing Corporation offering qualified first-time homebuyers a 10 per cent shared equity mortgage without interest for a newly constructed home or a five per cent shared equity mortgage for an existing home. This is meant to encourage the construction needed to address housing supply shortage.

“There are numerous concerns with regards to this policy,” says Francis Fong, chief economist at CPA Canada. “First, this implies that CMHC is taking on direct exposure to the mortgage market at a time of record household indebtedness and rising interest rates. Second, CMHC taking on a part of a buyer’s mortgage simply allows that borrower to lever further. In a supply-constrained housing market that already has sufficient demand, pushing more buyers into a higher level of debt is unlikely to impact supply, in isolation.”

The budget also includes expanding the Rental Construction Financing Initiative to help build 42,500 new housing units across the country, with an additional $10-billion in financing over nine years. The federal government also announced changes to the RRSP Home Buyers’ Plan, which includes increasing the withdrawal limit to $35,000, up from $25,000.

Justin Trudeau and Bill Morneau- 2019 Federal BudgetPrime Minister Justin Trudeau and Finance Minister Bill Morneau at the federal budget unveiling in Ottawa, Ont. on March 19 (CP Images/Sean Kilpatrick)

SKILLS TRAINING

The federal budget put an emphasis on developing new skills with the introduction of the Canada Training Benefit, which includes a refundable cumulative tax credit of $250 per year (with a lifetime limit of $5,000) for workers between the ages of 25 and 64 to help cover the cost of up to half of eligible tuition and fees associated with training.

“This was a key missing piece of the puzzle related to skills and innovation,” says Fong. “With the Canadian labour market changing at a rapid pace due to automation and technological change, many Canadians have already faced challenges in trying to keep up to date on the new skills being demanded, particularly in digital skills. Alongside the completion of the horizontal skills review, we can hopefully be optimistic that Canadians will get access to the programming they need to adapt to the labour market of the future.”

The federal government also introduced the Employment Insurance Training Benefit, which gives workers up to four weeks of income support, paid at 55 per cent of their average weekly earnings, as well as leave provisions that would protect workers’ ability to take time away from work to pursue training.

OTHER TAX ITEMS OF NOTE

The budget also included two other items of note, the restriction of preferential treatment of stock options, and scientific research and experiential development (SR&ED) credits for SMEs.

1) The restriction of preferential treatment of stock options: The government has proposed limiting the preferential tax rules that apply to stock options. Once more specific rules are announced later this spring, new stock options qualifying for the current preferential rules will be subject to an annual cap of $200,000 based of the value of the underlying shares for each employee when granted. This change will not apply to start-ups and rapidly growing Canadian businesses.

“One of the big issues that will have to be resolved is the dividing line between startups/growth companies and mature corporations,” says Bruce Ball, vice-president of tax, CPA Canada. “We understand that the government will consult with affected stakeholders.”

2) SR&ED credits for SMEs: The government announced that it will eliminate the current taxable income restriction that applies to companies otherwise eligible for the enhanced SRED credit. “This will eliminate the need for many of these companies to limit their taxable income to $500,000 using bonuses to owners, which will simplify things and improve cash flow,” says Ball.

A MISSED OPPORTUNITY

Absent from the budget was the announcement of a comprehensive review of Canada’s tax system—something that has not occurred since the 1960s. “This was a squandered opportunity,” says Thomas. “There is a groundswell of support for a full-scale tax review in Canada and a much-needed assessment would pave the way for an improved system that best positions the country for economic and social growth. We hope the government and other political parties signal their intentions to undertake a full-scale tax review in the upcoming federal election.”

Additional budget information is available here.

TIME FOR ACTION

In advance of the budget being tabled, CPA Canada released a series of three reports highlighting the need for a comprehensive tax system review—and how to get there.. 

Read the reports: International Trends in Tax Reform: Canada is Losing Ground, Canada’s Tax System: What’s so Wrong and Why it Matters, The Best Way Forward: Designing a Tax Review for Canada.