Ontario’s Minimum Wage Increases

Today, I am writing about the changes to the Ontario minimum wage. For full disclosure, I wrote this blog post during the holiday break, with the intent to try and have a fair-minded discussion about this issue. However, as you likely know, all heck broke loose last week in respect of this issue, when certain retailers took steps to reduce the impact of the minimum wage increases and Ontario Premier Kathleen Wynne responded strongly informing them if they wish to pick a fight, pick it with her and not their employees.

I have updated the post to account for some of these recent events and comments, but the intent remains the same, an attempt to have an even-handed review of the issues surrounding this significant labour change. In my opinion, that review ends in two conclusions:

1. The various studies related to minimum wage increases are not conclusive.
2. Small business owners, in general, will take steps to maintain their bottom line and in many cases, those steps will likely be diametrically opposed to the government policy intent. 

So, what is all this uproar about? As of January 1st, the Ontario Liberal government increased the minimum hourly wage to $14, with a further increase to $15 on January 1, 2019. That is a 32% increase since the beginning of 2017. This follows the lead of Alberta which plans to increase its minimum wage to $15 by October 2018.

This issue is very complex. I have conflicting views: through the prism of an individual and fair-minded person, I feel higher minimum wages, especially in high cost provinces like Ontario and Alberta are necessary to keep workers in these provinces, and to allow those individuals to maintain a minimum standard of living. As an advisor to small businesses, and a former employer of 35 or so people, I also understand one of the main objectives of a business is to make money and increase the bottom line. The margins on products or services are very often correlated to the cost of wages and salaries and thus, any increase to these expenses, can have significant profit consequences.

What the Studies Show

In December of 2017, the Bank of Canada released this report, titled "The Impacts of Minimum Wage Increases on the Canadian Economy".

 Some of the key findings of the paper are as follows:

• 8% of employees in Canada work at the minimum wage and estimates in the literature suggest that changes in the statutory rate have historically affected the wages of up to 15 per cent of employees with lowest wages. 
• There could be a very modest inflationary effect ranging from 0.0-.02 percentage points over the next couple years.
• The increases in the minimum wage lead to higher real wages, which push up firms’ marginal costs, and thus inflation increases accordingly as a fraction of firms adjust their prices in the short term.
• Weaker labour demand leads to reduced employment and lower hours worked, although the net impact on labour income is positive.
• Employment losses may amount to about 60,000 workers (it is my understanding this does not mean 60,000 in job losses, but means 60,000 fewer jobs may be created and in the detailed part of the report, it states the number could be as low as 30,000 or as high as 136,000 depending upon the measure used).
• Consumption would be reduced slightly as the higher inflation would elicit a slight interest rate increase, which would more than offset the higher labour income.
• Potential output should remain unchanged in the short run. Longer-term effects are possible through automation, productivity changes or changes in labour force participation. The sign of these longer-term effects is, however, ambiguous.

In this Talent Economy article titled “How Does the Minimum Wage Impact the Economy?" a U.S. publication, the author references several academic papers. The first study by The Institute for Research on Labor and Employment, finds “that a $15 minimum wage in California would increase earnings for 38 percent of the state, and businesses would see a reduction in turnover and increases in productivity. Raising prices by 0.6 percent through 2023 would offset increased payroll costs” which reflects a positive outcome of a higher minimum wage.

Yet, in the same article, the author quotes a report published in August 2016 from The Heritage Foundation that finds that a nationwide minimum wage of $15 per hour would lead to 9 million jobs lost, and states with lower costs of living would see the most negative impact. “Efforts to create jobs and reduce poverty should not center on forcing employers to pay higher starting wages,” the story concludes.

So, the studies are not conclusive one way or the other.

The Government's Position

In this Toronto Star opinion piece written yesterday by Kathleen Wynne, the Premier of Ontario, she opines the minimum wage increase is about fairness and opportunity for the citizens of the province. She does not feel the economics gains in Ontario have been shared equally by employers with their employees.

Premier Wynne states the following in the editorial "Big businesses and major corporations continue to celebrate record profits, while many people in this province juggle multiple jobs and still can’t afford the basics. CEOs enjoy massive salary increases while their workers can’t pay their bills.
That’s not right, and it's not who we are as a society".

Business Owners Position

Business owners are far from a homogeneous group and have varied situations and opinions on the topic. However, in general their position seems to be that minimum wages are an admirable social position, but it is not a practical policy, especially for certain industries such as restaurants and retail outlets (For example, it has been reported by the Great White North Franchisee Association, that the cost of implementing minimum wage hikes to each Tim Horton’s franchisee is $6,968 per employee and for the typical store, that results in increased costs of $243,889). Many small business owners feel the increase in minimum wage should be much smaller, phased in over more years and done in conjunction with tax policy that assists lower earning citizens.

How Retailers and Business Owners Can Manage Rising Minimum Wages

As discussed by BDO Canada LLP in this report titled “Nine Ways Retailers Can Manage The Rising Minimum Wage” there are both tactical and strategic options retailers can consider to reduce the impact on their businesses, where the impact of the minimum wage increase is significant.

Tactical Options

The BDO reports provides tactical options including: reducing employee headcount, optimizing shifts that employees work, reducing store hours to match customer shopping behaviour, reducing costs in other areas of the business and finally raising prices, which in effect, passes the wage increase onto the consumer.

In Ontario last week, there were widely reported cases where well known franchise owners scaled back work breaks, benefits and banned employees from accepting tips in an attempt to try and offset the minimum wage increase. These reports led to a huge outroar and publicity. These cases should cause business owners pause for thought; in that, tactical changes must also consider how your customers will react if the changes become public.

Strategic Options

The BDO report notes strategic options range from expanding technology beyond the self-checkout, optimizing government incentives, outsourcing non-core functions, and by giving the consumer more for their money.

In this article by Brenda Bouw in The Globe and Mail titled “Ontario small-business owners raising prices to cover minimum wage hikes”, the author considers the connection between tactical (price increase) and strategic (better client service) when she quotes retail consultant Doug Stephens of the Retail Prophet. Mr. Stephens says if prices are increased; “businesses could also view it as an opportunity to boost their customer service, by giving them more for extra money”. He goes on to say businesses should view this as “a watershed moment to design better and more enjoyable customer experiences that are actually worth more to their consumers”.

Issues Are Not Always Black and White

I have and have had, many small business clients who bend over backwards to never fire employees and to assist them as much as possible and some have even made 100% retention of their employees a condition of them selling their company. Often business owners are portrayed as heartless and just chasing the almighty dollar, yet, I have found many small business owners are the exact opposite and they care deeply about their employees. But, people are in business to make money, so while they may be conflicted in their actions and concerned for their employees, in most cases, their bottom line will influence their decisions.

Increasing the minimum wage has significant consequences to both a provinces employees and employers. Hopefully the economy is strong enough the next few years to absorb these increases, but in the end, only time will tell how these wage increases will impact Ontario and Alberta and whether the governments policy and intention will be served.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

In Ontario, You Are Rich If You Make $220,000!

I think most people would agree, that those of us who make the most money ("the rich") should be taxed at higher marginal tax rates. However, what we may not all agree upon is what level of salary/income makes you “rich” and what the highest marginal tax rates should be. In Ontario, where supposedly only 2% of income earners make more than $150,000, “sort of rich” now starts at $150,000 and you are considered rich at $220,000.

I guess it is all a matter of perspective (my accounting/tax practice and blog is/are directed at high net worth people and small business owners so my living depends on the “rich”) but to me, if you make $200,000 or even $300,000, you are doing extremely well, but are far from being wealthy or rich, especially if you live in Toronto.

A few weeks ago I was undertaking some dividend tax planning for a family that has various family members scattered across Canada. When I compared the taxes that were payable by the child in Alberta and the child in Ontario, I thought I had made an error in calculation. There was a massive tax payable variance on this dividend.

That Alberta and Ontario have a significant taxation gap is not new news. What caught me off guard, and I think will catch several Ontarians off guard at tax time this year, is the impact of the new marginal tax rate threshold in Ontario. In 2013, Ontario taxed incomes over $509,001 at the highest marginal rate. For 2014, the $514,090 threshold in Ontario was dropped to $220,000, and a second level of higher tax rates was introduced for those with income between $150,000 and $220,000.

The excellent website Taxtips.ca, reflects that the highest combined marginal rate for an Alberta taxpayer on a non-eligible dividend paid by the typical small business is 29.36%. In Ontario, that rate for someone who makes over $220,000 is 40.13%. If a small business pays a $200,000 dividend to a high marginal rate child living in Alberta, he/she will owe approximately $59,000 in tax on that dividend; while that same dividend will be taxed to the other child in Ontario at approximately $80,000.

For your information, the highest marginal rate on employment and interest income in Alberta is 39% versus 49.53% in Ontario. Although it should be noted that Alberta considers you rich at $136,270.

The point of this post was twofold. Firstly, to warn those of you who earn more than $150,000 in Ontario, that you may owe substantially more income tax next April; especially if you have self-employment, rental income, or other investments (not subject to tax withholding) and secondly, to note the huge taxation discrepancy between Alberta and Ontario. I expect there are going to be many Ontario accountants dealing with angry nouveau riche clients next April.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Can R&D or Mining save Ontario?

In the February 20th edition of the Globe and Mail, John Ibbitson had an article titled “Other provinces have no cause to gloat over Ontario’s woes.” The essence of the article is summarized in his final paragraph in which Mr. Ibbitson says “If things go badly, Ontario’s problem could become everyone’s problem, with a vengeance.”

The irony of this article was not lost on me, as recently over dinner, some friends and I debated the quality of Dalton McGuinty’s leadership and Ontario’s woes. We also discussed how Ontario can remain prosperous with a diminished manufacturing sector. Since my friends are huge McGuinty supporters, which I am not, they sarcastically asked me for my brilliant solution for Ontario’s issues.

I responded that I had not given this issue the proper thought, but that as part of the solution Ontario needs to expand its Research and Development sector. I suggested that Ontario be more targeted in its R&D program and cut-out fringe R&D claims. I proposed monetizing R&D credits which would allow companies who have unutilized R&D credits to sell or exchange them for cash, thus ensuring true R&D companies can further fund their development.

The irony of this situation continued when I reached for the business section. Staring at me on the first page was an article by Barrie McKenna titled “A glaring need to determine what is legitimate R&D.” ( If you wish a SR&ED primer, you can read my two blogs, The benefits of undertaking SR&ED and SR&ED-ing the Misconceptions).

In the article, Mr. McKenna discusses Federal Taxpayers’ Ombudsman Paul Dubé’s probe into the $3.5 billion annual SR&ED tax credit. Mr. McKenna notes that rather than identifying what was wrong with the program, Mr. Dubé quietly closed the probe into SR&ED with a truncated paper on the tax agency’s website explaining that there were too few complaints and insufficient evidence to reach any conclusions. Mr. McKenna further surmises that the closing of Mr. Dubé’s report will allow Prime Minister Stephen Harper to make the changes his government desires in the upcoming March 29th budget. Mr. McKenna notes that the Prime Minister embraced a report headed by Tom Jenkins, chairman of Open Text, that urged the government to limit SR&ED’s refundable credits, tighten the rules and then use the savings to support more strategic financing of R&D.

It will be interesting to see if the next federal budget addresses the SR&ED issue. From a more macro perspective, what impact would targeted R&D have in assisting Ontario to morph its economy?  As I have given the idea more thought, I think the reality is R&D would only form a small part of any solution.

So what other alternatives does Ontario have? Many including the Premier think maybe the "Ring of Fire" a mining area in Northern Ontario can stimulate the Ontario mining sector, as his government describes it as "the most promising mining opportunity in Canada in a century."

Maybe Ontario will never recover or replace its manufacturing base? Is Ontario as Mr. Ibbitson states destined to become two Ontario's. "The first Ontario is Toronto, a Canadian New York whose economy is powered by financial services, education, biosciences, cultural industries, tourism and more" and a second Ontario, "outside Greater Toronto that is a whole lot of Ohio, as the manufacturing sector follows other Great Lakes economies into rustbelt status."

What do you think? How would you re-make Ontario?

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Top Five Areas of Estate Litigation

I have written several blogs on wills, estates and executors; some from a tax planning perspective and others  from a purely philosophical or observational perspective. I find this topic area fascinating. Thus, I am pleased today to have a guest blog by Charles Ticker, a lawyer who specializes in estates. Charles will discuss the ugly underbelly of estates, the litigation that can arise.

The Top Five Areas of Estate Litigation

The writer Ambrose Bierce once quipped: “Death is not the end, there remains the litigation over the estate”. As a lawyer who deals with estate disputes, I can certainly confirm Bierce’s observation. Today I will discuss the top five areas where litigation tends to occur.

Challenging the Will

Wills can be challenged if the testator ( person who made the will) lacked the requisite capacity. The legal test for capacity to make a will was set out in the 1870 English case of Banks v Goodfellow :

It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties — that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not been made.

Anytime an elderly person changes his or her will in a significant fashion or decides to leave a child out of the will, the likelihood of a will challenge greatly increases. To defend the will against any possible claim, it is well worth spending the money to obtain the written opinion of a capacity assessor prior to the making of the will as to whether the individual had capacity. As well, it is helpful if the will is prepared by a lawyer as opposed to a self –help will kit. Medical records and lawyer’s records can be reviewed and may shed some light on the testator’s mental condition.

Another ground for challenging the will is undue influence. If Mom was coerced by daughter Sally to cut brother Bob out of the will, then the will may be set aside. However, it is difficult to prove undue influence.

Family Law Act Applications

In Ontario, if a married spouse dies without making adequate provision for his or her spouse, the surviving spouse can within 6 months of the date of death make an election either to take the gifts under the will or apply to the Court for an equalization payment similar to a divorce situation. Sometimes the surviving married spouse needs more time to make a decision whether or not to seek an equalization payment because the spouse does not have sufficient information or documentation concerning the deceased’s assets. In those situations, the surviving spouse can apply to the Court for an extension of time within which to file the election. Legal advice should be sought as soon as possible after the spouse’s death.

Dependant’s Support Relief Applications

In Ontario and most jurisdictions, there is an expectation that the deceased make adequate provision for the support of dependants. The definition of dependant varies from jurisdiction to jurisdiction, but in Ontario dependants can include minor and adult children , grandchildren, parents, siblings, married spouses, common law spouses and same sex partners. The dependant in Ontario needs to prove not only financial need but also that the deceased was under a legal obligation to pay support or was paying support just prior to the time of death. Once gain, there are time limits within which to launch a claim ( six months from the grant of letters probate of the will or of letters of administration) and legal advice should be sought as soon as possible. The Court, if it considers proper, may allow a claim that is filed later if there are still assets in the estate that have not been distributed.

Claims based on constructive trust and unjust enrichment

If a person has contributed money or labour or has provided value to the deceased which benefited the deceased and contributed to the acquisition, maintenance or improvement of an asset, a claim based on the doctrine of constructive trust can be brought against the estate. The Court may award the claimant an interest in the asset if there is a connection between the asset and the contribution made or may make a monetary award of compensation. Constructive trust cases are not easy to prove. There is often no real agreement that the claimant will receive compensation. Therefore, the claimant must show that the deceased received a benefit and was unjustly enriched at the expense or detriment of the claimant and that there was no legal reason for the benefit and related deprivation, that is the person contributing the money or services was not making the contribution as a gift or did not receive some other benefit from the deceased. Constructive trust claims are often seen in the context of a common law spousal relationships because at present in Ontario common law spouses do not have the same property rights on death as do married spouses.

Claims against executors

Executors have a difficult job. They are trustees and fiduciaries owing the highest duty of care to the beneficiaries. They are responsible to manage the estate in accordance with the provisions of the will and keep detailed records. If trusts are involved, they must prudently invest the estate. Executors can be called upon to account for their actions and in particular any compensation they propose to take. Even if the will allows the executors to pre-take compensation they will still be required to account to the beneficiaries. If the beneficiaries do not approve of the accounting, the executor must have his accounts passed by the Court. Sometimes, the Court will remove an executor if the Court is satisfied that the executor is not carrying out his duties competently or honestly. Executors also face potential personal liability from creditors of the estate if the executor distributes the estate and neglects to pay the deceased’s creditors. To avoid this problem, executors should advertise for creditors.

Charles Ticker, is an estates lawyer based in Toronto, Canada who focuses on estate litigation and mediation of estate disputes. More information about him can be found at http://www.tickerlaw.com/. The information in this blog is not intended to be legal advice. Readers should consult their own lawyer, attorney or other professional for advice.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.