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7 ways the Liberals’ majority affects you

CRumD2EUsAAgUCjOut with the old, in with the new. Monday night’s unpredictable election results overwhelmingly proved that Canadians wanted change.

And change we will get. With the Liberals in power, there’ll be changes to the country’s economy and your personal finances.

Besides having a Prime Minister the rest of the world seems smitten by, here are some ways the new government will affect you:

  1. TFSA limit: The Liberals will likely change the annual contribution limit back to $5,500.
  2. Tax cuts and increases: Prime Minister-designate Justin Trudeau has pledged to give greater tax cuts to the middle class (those earning $44,700 to $89,401) and increase income taxes on higher earners (those earning over $200,000).
  3. Family affairs: The Liberals will get rid of the Family Tax Cut and replace it with the Universal Child Care Benefit that provides about an extra $2,500 per year for a typical family of four.
  4. Students: Grads won’t have to start paying back their student loans until they’re earning at least $25,000 per year.
  5. Seniors: The age of eligibility for Old Age Security will not be raised. The Liberals have also talked about increasing Canada Pension Plan benefits.
  6. Small business: The Liberals promised to reduce the small business tax rate from 11 per cent to nine per cent and to improve access to skilled labour. However, president of the Canadian Federation for Independent Business, Dan Kelly, has expressed concerns that payroll taxes will be raised in order to find increases to CPP.
  7. The economy: If the Liberals legalize recreational marijuana, the industry could turn into a $5-billion market. The infrastructure building sector will also see growth, as Trudeau pledged to spend $60 billion to update Canada’s roads, bridges, and railways.

Are lower taxes for small businesses a good idea or bad idea?

Why small businesses and economists differ in opinion

small business, entrepreneurs, taxes, tax breaks, budget 2015, federal budget, Tories, CanadaAlthough the federal budget was largely praised by the Canadian Federation of Independent Business (CFIB) and by small businesses themselves, not everyone is on board with what the Tories are proposing. Lowering the small business tax rate is great for owners and entrepreneurs, but remains a sticky point amongst economists.

So, why the difference in opinion?

The reduction of the tax rate is something the CFIB and independent businesses have been lobbying for for several years. The reasoning behind the government’s decision is to help small business owners retain more earnings that can in turn be used to reinvest and create jobs. Over the four-year period, owners are expected to save about $2.7 billion in taxes. Almost 700,000 small businesses will benefit.

However, economists looking at the bigger picture and the greater Canadian economy have a problem with this reasoning. According to UBC economics professor Kevin Milligan, many people set up small businesses to avoid taxation on a personal level, meaning not many jobs will actually be created.

The new tax rate also increases the tax gap between large and small companies, providing an incentive for businesses to stay under the $500,000 profit threshold, which is bad for the overall economy, says Jock Finlayson, chief economist with the Business Council of British Columbia.

Regardless, small businesses still need support, but Milligan would rather see a simplification of their administrative burden, and imports and exports, or a reduction of tariffs.

The next post in the series looks at how the budget affects female entrepreneurs.