The government of Canada released a fall economic update that provided both additional relief for the COVID-19 pandemic and some clues on how we are going to pay for these relief measures. Kim Parlee speaks with Chris Gandhu, a High Net Worth Planner with TD Wealth, about how the proposed tax policies could impact Canadians.
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- Well, this week, we heard from the government with its fall economic update. And not only was it an update-- it had more information than most budgets have in it as the government gave its forecast for its spending, and some measures it might put in place. Within those measures, we had some hints of perhaps some new taxation, some other measures that could be coming. Here to tell us what caught his attention is Chris Gandhu.
He's a High Net Worth Planner with TD Wealth, and he joins us from Calgary. Chris, great to have you with us. And I just wanted to list off some of the things that I heard, and find out what twigged your interest. The first one I heard, though, was with regards to the housing market, the government saying they may be doing more to tax foreign ownership.
- Right, and good to be here, Kim. That's exactly what I heard, as well, of course. The fall update was short on details, but there was one particular piece of wording that caught my attention, Kim. Finance used the phrase "unproductive use of domestic housing," that that's sort of what they're targeting here, which tells us first that whatever these new rules may be, they're likely only targeting residential real estate properties. And "unproductive use" sounds very much like a speculation tax, so sort of what we have seen before in British Columbia and in Ontario.
Of course, what we don't know is, does this apply broadly to every municipality in Canada, or is it only targeting the major cities. We don't know the rate of tax, we don't know the exemptions, et cetera. So there are still a few unknowns here, but based on historical experience, Kim, I think it's fair to say that if and when these new rules are implemented, we may see some impact on the housing market as, again, we saw with Ontario and BC. But as long as a long term trend of growing population growth stays intact, the economists tell us that the housing market is on good footing.
- Hmm, all right. So something to note for homeowners-- something to keep an eye on. The second one that I heard, Chris, was something with regards to work-from-home expenses. What did you hear there?
- Right. Well, so typically, work-from-home expenses can be claimed by employees or contractors or commissioned employees, so easier to do if you're a commissioned or a contractor. But for those of us that are employed, that were forced to work from home because of the pandemic-- that's really what this measure is targeting. Now, typically, what CRA would want from you is some sort of an agreement between you and the employer that you are required to work from home, and that's generally evidenced by a CRA form T2200.
There is, of course, an addition to that other criteria to be met. And assuming you meet all that, well, then you have to enumerate your work-from-home expenses, which for employees, are typically limited to the utility bills.
And then it's not done. You have to now prorate those utility bills based on your home office relative to the size of the house. So instead of giving everybody, you know, this admin made work project, they've made all our lives simple and said that, we'll just permit the employees to take this $400 deduction, and I think this is a good measure.
- Yeah, I think a lot of people just sighed some relief when they realized the bureaucracy they may not have to deal with. Let's talk a bit about another measure that we heard something about, talking about implementing taxes on digital services-- things like Netflix or Amazon. What are you hearing there?
- Right, so really, two things here. First, these digital businesses aren't obligated to collect a sales tax. That doesn't mean they don't-- some in fact do, but not all of them do. So going forward, all digital businesses-- so when you're downloading an app, streaming video and music services, getting parcels delivered by Amazon-- well, they will for sure be collecting GST, HST, and likely, the provinces will jump on board as well if they have a sales tax.
The second thing is, Finance talked about, in fact, taxing the corporate income earned by these giants in Canada-- no consensus on that yet, and they'd rather wait for the International community to reach consensus, but feeling that I think we might see something in 2022 in Canada.
- Mm. What about Airbnb? I heard a bit about that, and I'm just, again, thinking for people who are, you know, using their properties and using Airbnb to rent them out, what could happen there?
- Right. So sort of similar to these tech giants, I mean, Airbnb is a digital service business. But instead of actually supplying the product or good or service, they simply facilitate a transaction. So presently, these companies, like Airbnb do not have an obligation to collect GST, HST, or any type of sales tax. In fact, that obligation does exist, but it exists on the homeowner.
And some homeowners, if they're aware of it, they may comply-- some may not. So there's some imperfect compliance, and that is all being changed. And when these new rules get implemented, however you rent your house, you will be collecting GST, HST. In fact, that puts these platforms and services on an equal footing with hotels and such, so probably a good measure.
- And the last one that caught my attention was taxation on stock options, specifically, the deductions that are allowed for it. Maybe you could just tell us a bit about who you think this could impact, and then what we're hearing right now?
- Right. This only really impacts a very small population, Kim. You have to be employed by a public company-- in fact, a large public company. I'll get into that. And you have to receive part of your compensation by stock options. So first, if you are receiving stock option compensation but you work for a privately owned company-- a CCPC, Canadian-controlled private corporation-- well, these rules don't apply to you. If you happen to work for a startup public company-- and that threshold has been defined now as gross revenue of $500 million or less-- well, then these rules don't apply to you.
But again, if you do happen to be working for a large pubco and you receive part of your compensation as a stock option, these rules might be material to you. Now, the stock option deduction, Kim, basically is essentially taxing stock option income, effectively at a capital gains rate because half of it's deducted and half of it's not deducted from your income. Going forward, once these rules are implemented, you'll still be able to take advantage of the stock option deduction, but only limited to $200,000 worth of stock options in a grantee, so anything in excess of that will be taxed as regular rate income to the taxpayer.
- Well, Chris, great roundup as always, appreciate you watching this for us. And we'll talk again soon.
- Happy to be here.
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He's a High Net Worth Planner with TD Wealth, and he joins us from Calgary. Chris, great to have you with us. And I just wanted to list off some of the things that I heard, and find out what twigged your interest. The first one I heard, though, was with regards to the housing market, the government saying they may be doing more to tax foreign ownership.
- Right, and good to be here, Kim. That's exactly what I heard, as well, of course. The fall update was short on details, but there was one particular piece of wording that caught my attention, Kim. Finance used the phrase "unproductive use of domestic housing," that that's sort of what they're targeting here, which tells us first that whatever these new rules may be, they're likely only targeting residential real estate properties. And "unproductive use" sounds very much like a speculation tax, so sort of what we have seen before in British Columbia and in Ontario.
Of course, what we don't know is, does this apply broadly to every municipality in Canada, or is it only targeting the major cities. We don't know the rate of tax, we don't know the exemptions, et cetera. So there are still a few unknowns here, but based on historical experience, Kim, I think it's fair to say that if and when these new rules are implemented, we may see some impact on the housing market as, again, we saw with Ontario and BC. But as long as a long term trend of growing population growth stays intact, the economists tell us that the housing market is on good footing.
- Hmm, all right. So something to note for homeowners-- something to keep an eye on. The second one that I heard, Chris, was something with regards to work-from-home expenses. What did you hear there?
- Right. Well, so typically, work-from-home expenses can be claimed by employees or contractors or commissioned employees, so easier to do if you're a commissioned or a contractor. But for those of us that are employed, that were forced to work from home because of the pandemic-- that's really what this measure is targeting. Now, typically, what CRA would want from you is some sort of an agreement between you and the employer that you are required to work from home, and that's generally evidenced by a CRA form T2200.
There is, of course, an addition to that other criteria to be met. And assuming you meet all that, well, then you have to enumerate your work-from-home expenses, which for employees, are typically limited to the utility bills.
And then it's not done. You have to now prorate those utility bills based on your home office relative to the size of the house. So instead of giving everybody, you know, this admin made work project, they've made all our lives simple and said that, we'll just permit the employees to take this $400 deduction, and I think this is a good measure.
- Yeah, I think a lot of people just sighed some relief when they realized the bureaucracy they may not have to deal with. Let's talk a bit about another measure that we heard something about, talking about implementing taxes on digital services-- things like Netflix or Amazon. What are you hearing there?
- Right, so really, two things here. First, these digital businesses aren't obligated to collect a sales tax. That doesn't mean they don't-- some in fact do, but not all of them do. So going forward, all digital businesses-- so when you're downloading an app, streaming video and music services, getting parcels delivered by Amazon-- well, they will for sure be collecting GST, HST, and likely, the provinces will jump on board as well if they have a sales tax.
The second thing is, Finance talked about, in fact, taxing the corporate income earned by these giants in Canada-- no consensus on that yet, and they'd rather wait for the International community to reach consensus, but feeling that I think we might see something in 2022 in Canada.
- Mm. What about Airbnb? I heard a bit about that, and I'm just, again, thinking for people who are, you know, using their properties and using Airbnb to rent them out, what could happen there?
- Right. So sort of similar to these tech giants, I mean, Airbnb is a digital service business. But instead of actually supplying the product or good or service, they simply facilitate a transaction. So presently, these companies, like Airbnb do not have an obligation to collect GST, HST, or any type of sales tax. In fact, that obligation does exist, but it exists on the homeowner.
And some homeowners, if they're aware of it, they may comply-- some may not. So there's some imperfect compliance, and that is all being changed. And when these new rules get implemented, however you rent your house, you will be collecting GST, HST. In fact, that puts these platforms and services on an equal footing with hotels and such, so probably a good measure.
- And the last one that caught my attention was taxation on stock options, specifically, the deductions that are allowed for it. Maybe you could just tell us a bit about who you think this could impact, and then what we're hearing right now?
- Right. This only really impacts a very small population, Kim. You have to be employed by a public company-- in fact, a large public company. I'll get into that. And you have to receive part of your compensation by stock options. So first, if you are receiving stock option compensation but you work for a privately owned company-- a CCPC, Canadian-controlled private corporation-- well, these rules don't apply to you. If you happen to work for a startup public company-- and that threshold has been defined now as gross revenue of $500 million or less-- well, then these rules don't apply to you.
But again, if you do happen to be working for a large pubco and you receive part of your compensation as a stock option, these rules might be material to you. Now, the stock option deduction, Kim, basically is essentially taxing stock option income, effectively at a capital gains rate because half of it's deducted and half of it's not deducted from your income. Going forward, once these rules are implemented, you'll still be able to take advantage of the stock option deduction, but only limited to $200,000 worth of stock options in a grantee, so anything in excess of that will be taxed as regular rate income to the taxpayer.
- Well, Chris, great roundup as always, appreciate you watching this for us. And we'll talk again soon.
- Happy to be here.
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