Economic analysis

What the budget means for your finances: Cross-border shoppers rejoice!

The duty exemption for cross-border shopping will be raised up to $800. On the downside, many family-friendly tax breaks are over.

Darryl Dyck/CP Images

If you’re younger than 54, you might want to delay your retirement plans by a few years. And if the tooth fairy pays your kids in pennies, you’d better start hoarding them because of this fall, the government is getting rid of the one-cent coin.

The Conservatives unveiled their first federal budget as a majority government. Gone is their past preference for small family-friendly tax breaks on everything from children’s arts programs to volunteering with your local fire department, in favour of a focus on slaying the deficit, finding a surplus in time for the next election and overhauling senior’s benefits, employment insurance and Canadian currency.

“This is very much a classic majority government budget,” says TD Bank chief economist Craig Alexander. “The politics of a four-year term is to hand out the bad medicine at the start and when you get close to an election you can show the benefits of what you’ve done and you can also probably hand out a few goodies at that time.”

The government introduced its much anticipated plan to raise the eligibility age for Old Age Security 65 to 67. But older working Canadians don’t have much to worry about since the changes will only affect Canadians born after February 1962 March 31, 1958. The government doesn’t plan to start raising the age limit until  2023 and then will gradually raise it over six years until 2029.

The age-of-eligibility change will be phased in between 2023 and 2029. So anyone born between April 1, 1958, and Jan. 31, 1962, will become eligible for benefits somewhere between ages 65 and 67. If you were born on or after Feb. 1, 1962, you won’t be eligible until 67.

That’s good news for businesses, in that they will have more workers to choose from in future years. But it’s bad news for Canadians in their 40s and early 50s who were hoping to retire at 65. It also has implications for younger Canadians, who will  be competing with older and more experienced workers in a larger labour pool down the road.

“It means possibly there’s less wage pressure because presumably the workforce is going to be a bit larger,” says Don Carson, a tax partner with Meyers Norris Penny,

Perhaps the biggest shocker in the budget for the average Canadian is that their wallets will be lighter – quite literally.

The government is proposing to scrap the penny, saying it now costs 1.6 cents to produce a coin worth just one cent. It will also change the way loonies and toonies feel jangling around in your pocket by making them out of plated steel rather than a metal alloy.

“It’s  good idea,” says Kevin Dancey, head of the Canadian Institute of Chartered Accountants. “They just hang around my pocket and fill up my drawer. We’ve all got tons of pennies sitting around that we don’t want to use.”

The penny will remain as a measure of accounting, and consumers paying by cheque or credit and debit cards will still pay in cent increments. But for cash payments on everyday items like groceries or your morning latte, businesses will have to round up or down to the nearest five cents.

The savings from doing away with the penny are modest – about $1 million a year. But says it could have larger consequences for both consumers and small businesses.

“Small businesses would probably appreciate the elimination of the penny,” he says. “People tend to hoard their pennies so as a small business owner you’re going to the bank quite frequently and having to withdraw rolls of pennies. You don’t necessarily have to do that anymore.”

At the same time, Carson said there’s a risk that some businesses, particularly those that deal mostly in cash, will reset their prices a few cents higher so that they’re rounding up rather than down, which would have an inflationary impact despite the budget’s promise that when other countries eliminated the one-cent coin, it didn’t lead to rising prices.

Weekend cross-border shoppers, meanwhile, are getting a windfall with the latest budget, which proposes to substantially raise the duty exemptions for goods bought on short trips to other countries.

The amount of tax-free purchases will go from $50 for trips of 24 hours outside of the country to $200, and from $400 for 48-hour excursions to $800. The increases are more modest trips of a week or more: from $750 to $800.

“You’ll want to have your kids come with you,” says Carson. “That’s the trick because each kid is worth an exemption. So don’t leave them at home with grandma.”

He predicts the changes will reduce border congestion by allowing border guards to waive more cars through without checking their purchases.

If you were planning a cross-border shopping spree over the Easter long weekend, you’re out of luck however, since the changes don’t start until June. The government estimates the duty free exemptions will save cross-border shoppers $17 million a year.

And if you can’t fit all your purchases in your car, the government also plans to allow Canadians to rent a vehicle in the U.S. and drive it across the border into Canada without paying taxes.

Unlike previous budgets from minority Conservative governments that aimed their focus at the average taxpayer, this budget features relatively few tax breaks for middle class Canadians. They include exempting pharmacist’s professional fees exempt from sales tax and giving families with severely disabled children more flexibility with the Registered Disability Savings Plans.

But unemployed Canadians will be getting a break as the government says it plans to expand a pilot project aimed at encouraging more people to take low-paying jobs while on Employment Insurance by allowing them to keep more of their money, up to 50 per cent of their unemployment cheque up from 40 per cent now.

The budget also promises to change the rules for companies that import temporary foreign workers, tying it to the Employment Insurance system to make sure businesses give preference to local unemployed workers. Hikes to EI premiums, meanwhile, will be frozen at five per cent a year.

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