There was one defining question in this year’s federal election: “Is Justin Trudeau ready?” Well ready or not, here he comes. Mr. Trudeau answered his critics with a boom by winning a majority government for his Liberal party. Now many Canadians have a new question on their minds: “What does a Liberal majority government mean to me?”
During the marathon campaign, Mr. Trudeau made several pledges that will now likely come to pass. Many Liberal campaign promises were aimed at helping the Canadian middle class. But the “middle class” is a group that contains more people than you might think, including many pharmacists.
To make our list relevant to pharmacists, we looked at the Liberal campaign promises through the lens of the latest 2015 Pharmacists Salary Report. Since many election promises are tied to income levels, this approach allows us to estimate a dollar value impact for many of the new proposals.
Estimated dollar impacts were calculated using some simplifying assumptions, so the actual impact to an individual may vary. However, we think the list provides a good ballpark estimate to many pharmacists.
1. Tax Cut for Middle Income:
Mr. Trudeau promised back on October 9th that, “A Liberal government will introduce, as its very first bill in Parliament, a tax cut for the middle class.” This will likely be the first order of business when the new government takes power.
The Liberals said it will cut the middle income tax bracket to 20.5 percent to from 22 percent. The federal middle tax bracket is currently $44,701 to $89,401 per year, so the tax cut translates to a maximum savings of $670 a year.
According to the 2015 Pharmacists Salary Report, the median pharmacist salary in Canada is $97,487 annually. This means that most pharmacists can expect the maximum saving.
Table 1: Middle Income Tax Cut (estimated annual impact):
[table width=”420″ colalign=”center|center|center|center”] New Grads,Mid Career Pharmacist,Late Career Pharmacist, Pharmacy Owners+$600,+$670,+$670,+$670
[/table]
2. Tax Increase for High Income:
To pay for some of its promises, Mr. Trudeau pledged to raise taxes on the highest income earners. The Liberals promised to introduce a new federal tax bracket of 33 per cent for individuals earning more than $200,000 annually. The current top federal bracket is 29 percent on income over $138,586.
Although this change doesn’t impact the majority of pharmacists, it will hit many pharmacy owners – a group that’s still reeling from recent regulatory changes that cut deep into their business profits..
For example, a pharmacy owner who declares $300,000 of income this year can expect a $3,300 increase in federal taxes. Pharmacy owners and their accountants will need to pay special attention to their salary/dividend decisions this year.
Table 2: High Income Tax Increase (estimated annual impact):
[table width=”420″ colalign=”center|center|center|center”] New Grads,Mid Career Pharmacist,Late Career Pharmacist, Pharmacy Owners$0,$0,$0 to -$500,-$3000 plus
[/table]
3. Reduction to the TFSA limit
The Liberals promised to drop the tax-free-savings account (TFSA) annual contribution limit back to $5,500. That means scrapping the Conservative’s move earlier this year to increase the annual TFSA limit to $10,000.
What does this mean for pharmacists? Losing the higher TFSA limit definitely hurts because you lose some tax-free investing room. But the final cost depends on how much TFSAs are used, as well as how they are used. Several recent reports have indicated that TFSAs are vastly underutilized in Canada, so the immediate impact to the average pharmacist may be small.
However, TFSAs are a popular tool for older savers closing in on retirement. Assuming that TFSAs are mostly used by mid-career to late-career pharmacists, our estimated impact for the reduction in TFSA room is a loss of zero to $600 per year.
Table 3: TFSA Room Cut (estimated annual impact):
[table width=”420″ colalign=”center|center|center|center”] New Grads,Mid Career Pharmacist,Late Career Pharmacist, Pharmacy Owners$0,$0 to -$300,$0 to -$600,$0 to -$600
[/table]
Young Families and New Grads
4. Family Tax Cut Scrapped:
Another Conservative initiative that the Liberals promised to scrap is the Family Tax Cut. Introduced less than a year ago, The Family Tax Cut allows a high earning spouse in a family with kids under 18 to transfer up to $50,000 of income to a low earning spouse. The result is a lower combined tax bill for the family, up to a maximum benefit of $2,000.
As I mentioned in a previous post this tax break benefited many pharmacists with young families. The size of this tax credit depended on the gap between the incomes and tax rates of each spouse
Table 4: Family Tax Credit Scrapped (estimated annual impact):
[table width=”420″ colalign=”center|center|center|center”] Scenario,High Income Salary Spouse,Low Income Salary Spouse, Value of Tax Credit (loss)1,”$60,000″,”$12,000″,”-$1,250″
2,”$100,000″,”$30,000″,”-$1,450″
1,”$130,000″,”$40,000″,”-$2,000″
[/table]
5. New Canada Child Benefit:
The Liberals will introduce a new Canada Child Benefit Plan to replace the current Universal Child Care Benefit. Mr. Trudeau said the new benefit will provide a typical family of four with approximately $2,500 more per year compared to the old plan.
The gain or loss to pharmacists with young children depends on their combined family income. The new benefits are gradually reduced for families with incomes of more than $150,000, and cut off entirely for those with incomes over $200,000.
Table 5: Canada Child Benefit (estimated annual impact vs. old plan):
[table width=”420″ colalign=”center|center|center|center”] Total Family Income,Family with 1 Child,Family with 2 Children,Family with 3 Children“$90,000″,”+$1,120″,”+$2,575″,”+$4,040”
“$140,000″,”+$195″,”+$1,075″,”+$2,100”
“$200,000″,”-$1,425″,”-$1,950″,”-$1,600″ [/table]
6. Home buying:
The newly elected Liberals also said it would relax the rules under which people can pull money out of a registered retirement savings plan (RRSP) for a house down payment. The Home Buyers’ Plan currently focuses on first time buyers.
The Liberals plan to expand the program to allow people to access it multiple times under certain circumstances (like moving for work, after the death of a spouse, after a marital split or to take in an elderly relative).
7. Grace periods for students and new grads:
Mr. Trudeau promised to eliminate the need for graduates to repay their student loans until they are earning at least $25,000 per year. Although this new measure will mostly benefit pharmacy students and interns, some new pharmacy grads could benefit as well. Depending on their calendar start date, a new grad hired in a full-time position may be able to defer interest payments on student loans by 12 months or more.
Late-Career Pharmacists:
8. CPP Enhancement:
The Liberals also made some campaign promises to Canadians close to retirement. Mr. Trudeau campaigned to expand the Canadian Pension Plan (CPP) and said he’d begin talks with the provinces on improving the CPP within three months of taking office. This now puts into question the future of the proposed Ontario Retirement Pension Plan, which Premier Kathleen Wynne suggested she would drop if Justin Trudeau became the next prime minister.
9. Old Age Security (OAS) at 65:
The Liberals also said they would not go ahead with the previous Conservative plan to gradually raise the age of eligibility for Old Age Security (OAS) by 2023.
As mentioned above, the above list of impacts are good ballpark estimates for many pharmacists. Updating your financial plan is the best way to determine how all these policy changes will impact your particular situation.
For those pharmacists without a financial plan, this year is a perfect time to start.
