Government Holds Firm on De Minimis Level – Some Areas of interest for Retail Merchants
The new federal government brought in its first budget on March 22, 2016, making substantial investments in infrastructure and social programs, in keeping with its platform commitments during the last campaign. Rather than add to the numerous analyses being circulated on the topic of deficit-spending, this note will instead address those aspects of direct interest to retailers.
The top line is a real GDP growth forecast of 1.4% for 2016, with inflation of 1.0%. Growth is expected to rise to 2.2% in 2017, with inflation at 2.4%. The federal budget is not expected to be balanced within the four year mandate of the government and deficits will amount to just under $100 billion over the next four fiscal years.
From a retail perspective, the budget is most remarkable for something that is NOT in it. Despite a strong pre-budget lobby from foreign sellers and the US air-freight industry, the government has rejected calls for a major increase the de minimis level and has maintained it at $20.
Under de minimis rules, parcels valued under $20 are exempt from sales taxes and duties when shipped into Canada by post and courier. An increase in the de minimis level would therefore mean that goods sold by Canadian merchants, whether in-store or online, would cost an average of 12.3% more after tax than those same goods shipped into Canada by courier or mail.
RCC is pleased with the federal government's decision and will continue to work with federal policymakers to underscore the critical importance of tax fairness to the success of bricks-and-mortar and online retailers in Canada.
The government already introduced its major personal income tax measures in the December 7, 2015 Fiscal Update. To recap, reductions in the middle personal income tax rate from 22% to 20.5% will reduce the income tax burden on most Canadian families and single-earners.
This additional disposable income for consumers should be of benefit to most Canadian retailers. Luxury retailers may see different outcomes, as the December tax changes also introduced a new top rate of 33% on income above $200,000.
Budget 2016 introduces an enriched Child Tax Benefit with recipient families receiving almost $2300 on average in 2016-17. While the current Universal Child Care Benefit (UCCB) cheques are being replaced by a more-targeted benefit, the overall enrichment of the program should be beneficial for retailers.
The small business tax rate on the first $500,000 of business income, which had been scheduled by the previous government to be reduced to 9%, will instead be maintained at 10.5%, with further reductions deferred indefinitely.
The government is engaged in a number of anti-tax avoidance initiatives, too lengthy to be detailed here. Further information can be found at the following here.
As the government moves to increase overall assistance to students, the Textbook Tax Credit is being eliminated. However, given that this was general assistance rather than targeted to actual textbook sales, it is doubtful that this would have a negative impact on the industry.
New spending on construction of affordable housing and on energy and water efficiency retrofits for existing social housing should be beneficial for home improvement retailers.
Innovation and Youth Employment
The budget commits an additional $50 million to the National Research Council's Industrial Research Assistance Program (IRAP) to support advisory services by Industrial Technology Advisers to small and medium-sized companies for innovation projects. This program dovetails with aspects of the Youth Employment Program, for which a further $73 million has been added for co-op placements and work-integrated learning. RCC will meet with the federal government to ensure that innovation in small to medium-sized retailers is eligible for support under these two programs.
The budget restates the government's intent to revise food labels to include more information on added sugars and artificial dyes in processed foods, as was previously indicated in the Liberal election platform and the Minister's mandate letter. This signals that the government will be moving forward over the next year. RCC has been actively engaged on this file and will continue to work with the Minister’s office and department officials to ensure any changes to nutrition labels are clear and helpful for consumers, based in science, and reasonable for industry to implement.
The budget commits to enhancing food safety in Canada with an allocation of $38.5 million over two years to further strengthen and modernize Canada's food safety system. With this funding, the Canadian Food Inspection Agency will invest in systems that help target inspection activities to the highest-risk domestic and imported foods. The Agency will also enhance inspection activities abroad to assist in responding to food safety risks before they reach domestic consumers. RCC will continue to work closely with the Agency to ensure consistent, retail-friendly requirements and to address historical irritants.
If you have any questions or concerns, please don’t hesitate to contact: Karl Littler, Vice President Government Relations and Strategic Issues at: [email protected] or 416-467-3783