The federal government announced last week that it will begin taxing the earnings of people who are employed by a company that has an appointment to manage its operations.
It also announced plans to eliminate a special tax break that allows individuals to defer tax until they’re retired.
But what happens to the money?
As the Globe and Mail’s Andrew Coyne reports, the changes don’t seem to be changing the money that people earn.
“It’s very hard to see how the money is going to get moved,” says economist Chris Williams of the Canadian Centre for Policy Alternatives, which advocates for a simpler, fairer tax system.
The new rules don’t mean you’ll have to file your taxes this year.
Instead, you’ll pay them on Jan. 1, 2019.
But even that’s uncertain.
According to the Canada Revenue Agency, the $10,000-a-year tax credit will expire on March 31, 2019, at which point a new tax rate will kick in.
The amount that will be refunded to taxpayers depends on the size of their income.
If they make $60,000, the federal government will refund a $1,400 tax credit, or $1.5 million.
If you make $50,000 or less, the refund will be $500.
But if you earn more than $150,000 — about the same as a high-earning couple — you’ll likely be on the hook for more.
So if you’re a married couple with a taxable income of $150-million, the maximum tax refund will only be $300.
If your income falls below that, the government will claw back the full amount of your refund.
For more, read: How your income will change under the proposed tax changes.
The big question remains: How much will your money go?
The answer is a little fuzzy, but the federal income tax system is a complicated beast.
For starters, if you make more than the federal threshold ($125,000), you don’t pay federal income taxes on it.
The only other place where you can pay federal taxes is on your behalf.
But that’s complicated.
As Coyne notes, the income you earn will have to be taxed by a province or territory.
This means that the federal portion of your income tax is likely to be much higher than the provincial or territorial portion.
“The big question is, how much will it be?
The answers are going to be very difficult to answer,” Williams says.
So what’s the big winner?
In most cases, the big winners will be low-income earners.
The federal credit for working at least 15 hours a week is worth $500 a year.
But a person earning between $25,000 and $50.5-million can claim up to $2,500 of that credit.
The government will give this money to people who work 50 hours or more a week.
This is a big deal for those working part-time or full-time, who might not be able to claim the full $2-million benefit.
The top rate of income tax will be lowered from 40 per cent to 25 per cent.
This will be especially significant for families, who will see their federal tax rate drop from 39.6 per cent, the highest in the world, to 25.5 per cent under the new tax plan.
The income tax changes are expected to boost economic growth by about 0.3 per cent in 2019-20, according to the federal budget.
But they also raise some questions about fairness.
For one thing, if the federal tax system looks more like a business tax system, where you pay taxes on a profit rather than a loss, that could make the overall system more progressive.
This would mean more people paying taxes on profits rather than losses.
That could mean higher rates for the middle class.
And there’s no guarantee that the new taxes won’t have some unintended effects on the rich.
If, for example, the new income tax rules make it more difficult for people who earn a lot of money to defer taxes to pay the taxes that are due, that may encourage people to invest more in stocks and other investments, even as they pay less in taxes.
“If you can do it through a different tax code, you can get some additional benefits,” Williams adds.
“I don’t think we’re going to see a significant reduction in the income of people.”
And the biggest question still looming is how the new rules will affect people who don’t have an appointment.
Many of these people are still working and therefore will have the tax credits available, but they might not want to work as much.
If these people don’t want to do as much work, they could defer taxes on their income, but that might mean paying a higher tax bill.
That’s what Williams is worried about.
“We know that when you have low-wage workers, that that might not offset what you’re paying in taxes,” he says.