Justin Trudeau’s Liberals survived another election on Monday with enough seats to form a minority government, which could lead to higher taxes for big banks and big spenders.
The Liberals were leading or elected in 159 seats (figures updated Sept. 24, per CBC) — just two more than they won in 2019 and 11 short of the 170 needed for a majority. Erin O’Toole’s Conservative Party was leading or elected in 119 seats, two fewer than in 2019. Jagmeet Singh’s NDP was leading or elected in 25, a gain of one seat, while Yves-François Blanchet’s Bloc Québécois held 33. The Greens, which elected three MPs in 2019, were down to two.
The Liberals called the election in August hoping to win a majority government on the strength of their response to the Covid-19 pandemic. Instead, they found themselves in a tight race, at times trailing O’Toole’s Conservatives in the polls. The Liberals will continue having to rely on the support of at least one other party to pass legislation in the House of Commons.
A re-elected Liberal government could hit bank profits. The party pledged to raise the corporate income tax rate for banks and insurance companies from 15% to 18% on all earnings above $1 billion, and those institutions would also contribute to a Canada Dividend Fund. Together, the two measures would raise roughly $10 billion over four years, according to the party’s platform.
The Liberals justified the policy by pointing to government relief programs such as the Canada Emergency Wage Subsidy and the Canada Recovery Benefit, which they said prevented bankruptcies and credit loss, and “insulated our financial sector from the worst of the pandemic.”
The big banks have reported large profits this year thanks in part to lower loan-loss provisions, as reserves built up early in the pandemic to absorb credit losses weren’t needed. Investors have been anticipating higher dividends and share buybacks when pandemic restrictions are lifted, and some banks have indicated they’re looking at potential U.S. acquisitions. A higher corporate tax could affect those plans.
On the tax side, the Liberals may move on a promise from the 2019 election campaign: the luxury tax. Just before the election call in August, the Department of Finance announced consultations on the design of the new tax that would apply on the sale of new luxury cars and aircraft with a retail sale price of more than $100,000, and new boats that cost more than $250,000.
They also pledged to increase Canada Revenue Agency resources by up to $1 billion per year to combat “aggressive tax planning and tax avoidance” and close the tax gap. Top earners would face a 15% minimum tax that would remove their “ability to artificially pay no tax through excessive use of deductions and credits,” the Liberal platform said. The tax is projected to raise $1.7 billion over five years.
For clients with disabilities, look for the Liberals to move on a Canada disability benefit, a direct monthly payment for low-income Canadians with disabilities aged 18 to 64. The Liberals tabled legislation for the new benefit the day before Parliament rose in June, and it would need to be reintroduced in a new Parliament.
The Liberals also said they would review the Disability Tax Credit and other federal benefits and programs to make sure they’re accessible to those experiencing mental health challenges.
On housing, prospective buyers may soon be able to access a new tax-sheltered savings account. The Liberals’ proposed First Home Savings Account would combine features of an RRSP and a TFSA to help Canadians under 40 build a down payment of up to $40,000 faster.
The party also said it would double the First-Time Home Buyers’ Tax Credit; introduce an “anti-flipping tax” on the speculation of residential homes, requiring property to be held for at least 12 months; ban new foreign ownership of Canadian houses for the next two years; and implement a 1% annual tax on vacant housing owned by non-resident non-Canadians (Finance launched consultations on the measure, proposed in the 2021 budget, just before the election).
Real estate investments could also face greater scrutiny. The Liberals campaigned to review the tax treatment of large corporate owners of residential properties like REITs and implement policies to “curb excessive profits.”
Another minority government
Because the Liberals failed to win their coveted majority, they will again have to rely on support from other parties to govern. When it came to spending, the Liberals had no trouble passing pandemic measures, and the Conservatives campaigned on similar deficits. A report released last week from Rebekah Young, director of fiscal and provincial economics with Scotiabank Economics, noted policy convergence in the campaign with “a bias towards more spending” and “largely non-existent” fiscal anchors.
The Liberals may need support in Parliament from the NDP, which campaigned on higher corporate taxes — including a temporary 15% “excess profit tax” related to pandemic gains — as well as a wealth tax and a capital gains inclusion rate of 75%.
Here are other Liberal pledges that may interest clients should they come to pass:
- A “career extension tax credit” for working seniors. Canadians over 65 who earn at least $5,000 at their jobs will be able to eliminate tax payable on a portion of their income and receive a tax credit of up to $1,650. (Quebec has a credit like this for people over 60.)
- An extension of the home expense deduction for those working from home, with the deductible amount increased to $500 without receipts.
- A new national agency to investigate financial crimes that brings together the RCMP, the Financial Transactions and Reports Analysis Centre and the CRA.
- A modernized general anti-avoidance rule regime to prevent banks and insurance companies from using “tiered structures as a form of corporate tax planning that flows Canadian-derived profit through entities in low-tax jurisdictions in order to reduce taxes back in Canada.”
- The elimination of flow-through shares for oil, gas, and coal projects to promote the transition to a net-zero economy.
- A one-time tax deduction for health-care professionals in first three years of practice of up to $15,000.
- An expanded Canada Caregiver Credit which would become a refundable, tax-free benefit.
- Increase the guaranteed income supplement by $500 for single seniors and $750 for couples starting at age 65.
- Double the Home Accessibility Tax Credit to $20,000.
- Establish a single, independent ombudsperson with the authority to impose binding arbitration to handle consumer complaints involving banks.
- Enhance the Financial Consumer Agency of Canada’s powers to review the prices charged by banks, and implement changes if they’re excessive.