Canadian businesses must prepare for heavier tax burden in 2024

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Appeared in the Hub, January 9, 2024
Canadian businesses must prepare for heavier tax burden in 2024

As the calendar has turned to 2024, businesses, charities and other organizations should have accounted for higher taxes when they did their financial planning for the new year. If they didn’t, they’re in for an unpleasant surprise. Just as a man whose diet consists entirely of chocolate cake, consumed in ever-increasing quantities, will likely place a greater strain on the scale at each doctor’s visit, the federal government is ever-expanding in its size and consumption. And we’re all getting squashed.

The Canada Pension Plan tax is being hiked—or, as the Trudeau government says, worker CPP “contributions” are being “enhanced”—for a fifth consecutive year. After increasing the combined employer and employee tax rate from 10.2 per cent in 2019 to 11.9 per cent in 2023 with four annual increases, next year the tax hike takes the form of a new earnings ceiling above the original one, where workers will be taxed at 8.0 per cent.

With the new higher earning ceiling, the Canada Revenue Agency estimates the total tax on a worker earning $75,000 would rise from $7,509 in 2023 to $8,015 in 2024. On paper, the increased tax burden is split equally between the employer and the employee—and businesses, charities and other employers must budget for this tax hike in 2024. In the long run, the economic burden of the tax falls mainly on workers in the form of lower wages, worse benefits or reduced employment.

On top of the CPP tax hike, financial analysts and planners have another annually escalating tax to account for in 2024—the carbon tax. From $65 per tonne of carbon dioxide equivalent in 2023, the federal carbon tax will rise to $80 per tonne in 2024. The costs of utilities, fuel, transportation, manufacturing and many other things will rise. Businesses and organizations will be affected to different degrees, but for many, the carbon tax increase will materially increase expenses.

Another new tax expected in 2024—the stock buyback tax, first proposed by the Trudeau government in 2022 and reaffirmed in its 2023 budget. The government says its tax will “encourage firms to re-invest in their workers and businesses.” In reality, it will make it more difficult for companies to transfer capital back to its shareholders, discouraging investment, reducing capital mobility and harming productivity.

Other new taxes may well be on the way. In the fall, the Trudeau government threatened to impose special taxation on grocery stores. From a political standpoint, the announcement appears calculated to please voters frustrated by food price inflation by attacking a politically convenient target. From an economic standpoint, it’s utter stupidity. You cannot make food more affordable through special taxation of stores that supply food.

Special taxation of politically convenient targets is not new for this federal government. In Budget 2022 it announced a special surtax on financial institutions; in Budget 2023 it announced yet more special taxation of financial institutions to begin in 2024, in the form of taxing their dividend income.

Clearly, businesses not only need to budget for taxes already announced, but also must allow for the possibility that politicians will in the upcoming year find some political motivation to levy more taxes.

Like the scale in the office of the doctor whose patient only eats chocolate cake, thanks to the federal government, businesses and other organizations in Canada must prepare to bear a heavier burden in 2024.