As we finish off the third quarter of 2017, September has brought us extreme weather, national tax issues for small business owners, and now an interest rate increase – the second for the year – courtesy of the Bank of Canada. All separate in their own right, they all have an effect on the economy, and some Canadians directly.
How extreme weather affects the economy
So let’s start off with the tragic extreme weather happening right now. Fires in Canada, tropical storms and hurricanes to the south, earthquakes and tsunami watches, and this is only the past couple weeks. You may be looking at these environmental happenings and wondering how it all may affect you? From an economic standpoint, mass flooding and destruction of homes and communities hits that local region hard. Companies needing to rebuild lose production and revenue. The region specifically being a main oil refinery centre has shown effects immediately on the price of gas at the pumps as refineries were offline due to flooding. Insurance companies feel a hit with an influx of claims pouring in. However, there can be economic gains to follow as construction is spurred to renovate or rebuild. The need for equipment for flood repair (think industrial fans) increases, boosting sales for those companies involved in that stage.
Canada’s Minister of Finance proposes changes for small business owners
Still in the proposal stage (and receiving backlash from Canada’s business community), Finance Minister Morneau is calling for tax change affecting Canadian corporations. Not incorporated? This is still valid information as it may affect a future decision to incorporate. The tax changes hit 3 major areas that incorporated business owners can currently achieve tax savings: “income sprinkling”, passive income from investments, and lastly the transfer of income to capital gains which are taxed at a lower tax rate. The proposal is cited by Minister Morneau to not be intended to penalize business owners, but rather close tax loopholes that the wealthy corporations or incorporated professionals currently use… to “level the playing field”. This, coupled with the future minimum wage increase in Ontario, will undoubtedly see a strain on many incorporated small businesses.
Interest rates rise… again
As many Canadian’s may cringe with the announcement of a Bank of Canada interest rate increase – the second for the year – this is actually not a bad thing. Yes, any variable-rate interest products you have will increase, new fixed rate lending (I.e. Mortgages and lines of credit) will increase, and Canadian’s may need to be conscientious about their debt servicing costs and ceilings. You may be wondering WHY the BoC has increased again because it was so nice to have lower interest rates. The reason is simple – Canada’s economy is strengthening and can withstand interest rates being at a more reasonable level. Interest rate decreases are used to stimulate a hurting economy. The fact that the BoC is confident in the consistent growth of Canada, and the current strengthening of the Loonie, is a good thing. It may be time to get a handle on some of your debt, however, since it will start to cost you more.
Canada’s economy continues to strengthen as we approach the 10-year mark since the financial crisis of 2008. With NAFTA (North American Free Trade Agreement) under review as promoted by President Trump, the end result of that agreement may or may not affect Canada’s economy. Since the United States is the largest trade partner of Canada significant changes to that agreement may have a lasting effect on some of the resources that are sent to the south. This, like many of President Trump’s initiatives, is a wait and see as delegates from Canada, US and Mexico continue to discuss.
Worried about how what’s in the headlines affects you directly? I’d love to chat about it!