Forgive me for being skeptical but I am predicting that the federal government’s $88 billion announcement yesterday will cause a lot of frustration, be ineffective, and will turn into a bureaucratic nightmare for individuals, families, accountants, small businesses and employees at the CRA.
The government is patting itself on the back, as are many columnists in mainstream newspapers applauding the $88 billion announcement yesterday. Let’s be very clear and accurate. It’s really only $27 billion. $55 billion of the $88 billion is merely a tax deferral. People who owe personal income tax and corporations who owe corporate income tax can defer their tax payments until September. This $55 billion will eventually need to be paid to the government.
Let’s put this in regular normal human terms. If I know that I will owe a certain amount of personal income tax or corporate income tax in September, then I need to set that money aside. So what difference does it make that they deferred these payments until September? If the idea is that cash flow is hard right now but will be all back to normal by September, then I think that is overly naïve and too optimistic. Clients have called me and told me they have to lay off all their employees because they literally have zero revenue coming in. If an extremely high amount of self-employed people and small businesses have zero revenue coming in, then deferring tax payments until September doesn’t truly help because these people will not have money on hand come September to pay these outstanding tax bills.
Furthermore, GST/HST and payroll tax remittances must still be paid on time as if everything is normal and self-employed people and business owners still have cash on hand to pay these amounts out. Why weren’t GST/HST and payroll tax remittances included in this deferral?
Now let’s focus on the $27 billion that the government is physically paying out to Canadians. We can divide the government’s announcement yesterday into two categories: efficient and inefficient. Meaning, if the goal is to get money into the hands of Canadians pockets, it must be done in the most efficient, simplest, easiest, pain-free way possible. Let’s start with the efficient.
The government will increase the amounts of GST credits and Canada Child Benefits that people will receive. This is efficient. No one has to fill out an application, no one has to call the CRA, and no one has to lift a finger or do anything. If you are already receiving GST credits and Canada Child Benefits, you will simply receive more.
They are waiving the one-week waiting period for EI and waiving the requirement to provide a medical certificate to access EI benefits. These are ways to increase efficiency so these are positive steps.
Now let’s look at the inefficient new bureaucratic soon-to-be nightmarish programs the government has concocted.
The “Emergency Care Benefit” is going to be like EI, will be administered through the CRA and provide $900 every two weeks to people who are sick and do not qualify for EI, such as anyone who is self-employed. It includes people who are taking care of a sick family member and parents with children who are unable to earn employment income, whether they qualify for EI or not.
Here is the inefficient aspect of this program. You must apply. The application will not be available until April and you will need to attest that you meet the eligibility requirements. Furthermore, you will have to “re-attest” every two weeks that you are still eligible. Welcome to bureaucracy.
Here is the most bureaucratic nightmarish aspect of this program. How do you apply? There are three options: through your CRA My Account online, through your My Service Canada Account online, or by calling a toll free phone number equipped with an automated application process.
As an accountant who deals with CRA and Service Canada on a daily basis, I can tell you that this is going to be a nightmare. People will not be able to get through to the phone lines, the automated phone system will not work property, and people will have trouble setting up their CRA My Account and their My Service Canada Account online.
My clients who have tried to set up their CRA accounts online have had to go through hoops and hurdles that are so frustrating; they usually end up giving up. I am boldly predicting that this system will cause many people to become very grumpy and frustrated and will simply not work as intended, causing unacceptable delays in the payments.
The next inefficient program is the “Emergency Support Benefit”. This will also be delivered through CRA and will provide support to those workers who are not eligible for EI and who are facing unemployment.
It seems that the only difference between the Emergency Support Benefit and the Emergency Care Benefit is that the Emergency Care Benefit is for people who are sick or taking care of someone sick and the Emergency Support Benefit is for people who are well but can’t work and are ineligible for EI. I don’t see any details about how to apply for this benefit but if it’s the same process as the Emergency Care Benefit, then good luck everyone.
Now why did the government have to create these two new programs? Why not just make everyone eligible for EI to keep things a little bit simpler? Why create two new programs to confuse people? Why not just roll them into one program to keep things simple! If someone is a small business owner operating through a corporation, will they be eligible for these benefits? Does self-employed include incorporated business owners? It’s not clear.
A nagging question that keeps me up at night is whether or not these benefits are taxable. People who receive EI have income tax deducted from their EI and must include the EI benefits in their income tax return and sometimes end up owing additional income tax at the end of the year.
Will the “emergency care benefit” and “emergency support benefit” be taxable income? Or will they be tax-free? I have not seen any details regarding this from the government. If they are taxable, then remember, if you receive these benefits, you must set some aside to pay your tax bill! This is literally the definition of inefficient bureaucracy: government gives you money, you set aside some of it and give it right back.
Other help announced yesterday is a six-month moratorium, interest-free, on student loan payments and banks are going to work individually with Canadians on offering a six month deferral of mortgage payments and other payments on credit cards, lines of credit and auto loans. I like this idea because the government is largely out of the picture. People can contact their banks and credit card companies directly.
Do people who rent still have to pay their rent? Will the EI, Emergency Care Benefit and Emergency Support Benefit be enough for people who still have to pay rent or will landlords forgive rent for six months? What about property tax payments? Will municipalities allow a deferral for property tax payments?
The government extended the tax filing deadline to June 1st from April 30th. Very nice, but what about March 31st filing deadlines for some GST/HST returns, T5013 partnership returns, T1134 returns. These deadlines have not been extended. So with accounting offices all over the country closing and clients at home watching their children and taking care of loved ones, some of these returns will inevitably be filed late incurring late-filing penalties. What then? The taxpayer relief department will become inundated with taxpayer relief requests to waive the penalties and it will take months or even a year or more to process all the requests. Why weren’t these tax return deadlines also extended? In the meantime, due to the new inefficient programs the government is creating, accounting offices will be completely overwhelmed because they will need to help all their clients apply for and navigate the complicated bureaucracy required to access the new benefits.
For businesses, the government is offering support through the “Canada Account” through loans, guarantees or insurance policies. No details have been released on how to apply or what the eligibility requirements are.
The government is also offering a subsidy for up to three months to help small employers keep their employees. The subsidy is 10% of salaries paid during that period. Is 10% enough to keep employees? Considering that many businesses have to shut their doors entirely and have, literally, zero revenue coming in, how can they be expected to keep any employees? Other European countries are offering a 75% subsidy.
Furthermore, the government announcement says “The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration.”
Now, in English, what that means, is an employer can pay the employee but then not have to remit the income tax deducted from their pay to the CRA. So what that means is, presumably, when the employee receives his or her T4 at the end of the year and files their personal tax return with the T4 slip provided, not enough income tax would have been deducted from their pay. This means that this taxpayer will have additional tax to pay at the end of the year. Now, it’s possible I am misunderstanding this, so please comment or get in touch with me (firstname.lastname@example.org) to correct my understanding.
The government is also offering a “Business Credit Availability Program” which will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide $10 billion of support, targeted to small and medium-sized businesses. How do you apply for this? What are the eligibility requirements? What are the interest rates? Will you have to provide financial projections, bank statements, and notice of assessments? Bureaucratic nightmare ahead! Many smaller businesses will not have the time, resources, or money available to apply for this program. They will feel the costs and time required to apply are simply not worth it. These programs will mostly go to larger businesses that have the time and resources and help to apply for these bureaucratic programs.
Overall, it is my humble opinion that the government completely botched this. If they really wanted to help people in a quick, efficient and simple way, they would just simply send a cheque or direct deposit to every taxpayer. Perhaps the amount would be based on the number of people in their household, which the government already has on file based on tax returns already filed. The payout can also be based on combined family income to ensure it goes to people who need it the most. Or they could simply do a retroactive refund of previous tax paid from 2019 or 2018. Or they can declare a three month moratorium on all rent, mortgages, property taxes and utility bills to ensure the only bills that need to be paid are grocery bills during this difficult time.
Creating new government bureaucracies and complicated application processes and convoluted loan programs will not help and will just cause stress, frustration and more grumpiness for taxpayers and their accountants alike.
The government should seriously reconsider their current approach and opt for something much simpler without the need for online or phone applications. While we’re at it, let’s remember that the current tax system, as it exists right now, is absolutely insanely ridiculously complicated. There are other countries with much simpler tax systems. I have written previous articles about that topic and I am currently writing a book about it, entitled The Grumpy Accountant, which I hope to publish this year. You can sign up for updates regarding the book’s release at http://www.grumpyaccountant.ca.