The federal budget includes a Canada-wide childcare system, extended pandemic support, increased Old Age Security, and support to women and other underrepresented entrepreneurs. Kim Parlee speaks with Chris Gandhu, High Net Worth Planner, TD Wealth, on what it means to you and your family.
Hi, Kim, happy to be here and you're exactly right. Leading up to this budget, a lot of talk and a lot of rhetoric about how we are going to pay for these large deficits. And I completely agree with you. There was very few income tax raisers. There's a digital services tax which is quite minor. But really, apart from that, nothing on income tax, nothing about the capital gains inclusion rate increasing or the much talked about wealth tax, nothing at all.
OK, let's talk about what was in it then, Chris, childcare was really the centerpiece in terms of both the spending and the focus, maybe tell us a bit about that from your perspective.
Right. So this universal child care has been talked about in Canada for decades and it took a COVID budget to bring it to the forefront. What the government is proposing is that through some sort of a cost sharing with the provinces, they expect to reduce the child care costs for Canadian families by up to 50 %. And that's happening fairly quickly by the end of 2022. And then fairly ambitious that by the year 2025-2026, we expect child care cost to drop as low as ten dollars a day for most families. This is quite ambitious, something to look forward to, but also perhaps the most expensive part of the budget.
Although it's awfully expensive for families who are paying for childcare. Maybe that's something from a planning perspective they can think about as they plan their families in the next little while. Another big one, I know that you had your eye on were support measures. We saw things like at the CERB and wage subsidies and commercial rent subsidies be extended but also being some of them being scaled back at the same time.
Yes, that's right. We have both of these things happening, so most of these wage subsidies, whether business or personal were set to expire in June. Now they're being extended until September, that is a three month extension. But sometime in the summer or June or July, the benefits that are currently payable under these subsidies are also being reduced because I suppose the government expects that people will be going back to work and there's less need for that stimulus. Also notable are a few new things that have been thrown into the mix. First, we have a Canada Recovery Hiring Benefit. So for those employers that are hiring new employees or rehiring employees, they can choose between the CEWS, the wage subsidy or this program, whichever they feel gives them a better benefit. But this program doesn't start until the summer. We have a 15 hour minimum wage on certain federally regulated industries. So that's new. We have some new programs that have been announced, but no details yet on Black entrepreneurship and indigenous entrepreneurship in Canada. Certainly a mixed bag of things.
Interesting. In terms of on the revenue side, again, we saw that it was light. But one thing that was interesting, it looks as though the federal government is trying to weigh in on some of the high housing prices using a national vacancy home tax. Tell us a bit about that one.
This is something that the city of Vancouver has done so perhaps the feds are learning from that experiment. This tax as it is currently proposed and again, there aren't very many details because I expect to have a consultation on this but it's expected to apply at a rate of 1% based on the fair value of the property, as long as a property is being underused or sitting vacant. And, of course, what is underused is going to be up for debate. If you happen to be a Canadian citizen or permanent resident, you're exempt. It really does apply to those that are non-Canadians hanging on to Canadian property and according to the feds have unproductive use of their property. I think this is effective in January 2022.
That will be one to watch especially. And I think some certain communities out west will want to see how that one plays out. Another interesting one here, a luxury tax being announced on planes, boats and cars.
Yeah, that is an interesting one. Kim, if you recall, actually, this was 2019 when the federal liberals first talked about this as part of their election campaign. We didn't have a 2020 budget. So it seems to have died. Now, It's been resurrected. So if you happen to be a Canadian purchasing an automobile or an aircraft that is worth more than $100,000 or a boat worth more than $250,000 which I guess is not a boat, it's a yacht of some type. This tax is going to apply to you effective January 1, 2022. And the tax is a lesser of either 10 % of the total value of the purchase, or I believe it's 20 % of the excess. So if you happen to buy a car for 120,000 rather than pay 10 percent which would be 12,000, you'd only pay 20 % off the 20,000 above the 100,000. So you'd get away with paying 4,000.
And finally, I was talking earlier with James Marple, TD Economist, about the breadth of the budget and scope. It covers everyone and everything in some way, shape or form. And the last thing I want to finish off with you, is that there are both some changes for personal finance for both seniors and for students, both ends of the spectrum.
There's support for seniors, the old age security benefit is being increased by 10 %, I believe that doesn't kick in until next summer. And there is a one-off $500 payment to seniors this summer, sometime in August, I believe. Interesting as seniors are defined as 75 plus, not the typical age, 65. For students, there are a few benefits out there. First, there is an interest deferral on student loans extended until 2023. The Federal Student Grants program is being enhanced. In fact, the grants are being doubled. And if you happen to be a student that has just entered the workforce, previously there was an obligation to repay your student loans if your income exceeded $25,000, well, now that income threshold has been increased significantly to $40,000 that is inflation adjusted thereafter.
Chris, always a pleasure. We so appreciate you taking the time and running through everything with us.
Thank you for having me Kim.