Among the changes announced by the federal government in its budget yesterday is the cancellation of the Canada savings bond program, a savings vehicle many employers have long included as a payroll deduction option for their employees.

The program, which dates back to 1946 and peaked in the late 1980s at nearly $55 billion of federal market debt, has fallen to about $5 billion. The government says discontinuing the sale of new bonds this year will save money from reduced administration costs and notes the move will allow it to focus on cheaper funding options, such as issuing wholesale debt.

“No real surprise there, really,” says Walter Posiewko, a senior portfolio manager at RBC Global Asset Management.

“It became an inefficient way of funding the government,” he adds. “It was probably a good thing to do.” 

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In 2015, the government commissioned a review of the program that found that 88 per cent of Canada savings bonds were sold through payroll deductions. “It was a benefit that employers offered employees, and now that benefit is gone,” says Posiewko.

“Clearly, [with] Canada savings bonds going the way of the dodo bird, the same thing will happen to payroll savings plans as a result,” he adds.

Posiewko notes that in the 1980s, people had fewer investment options. “So you had fairly good interest rates, you had a government guarantee attached to it, it was perfectly liquid at all times, it could be cashed at any time. These were all selling features at the time, as compared to today where you have, first and foremost, many more alternatives to the investor. And, of course, interest rates are much lower now, so it’s not nearly as attractive as back then.”

New investment option for pension funds

The budget also included a note that the government would soon propose legislation to establish the Canada infrastructure bank, with the goal of having it operational by late 2017. The bank will invest $35 billion over 11 years in infrastructure planning and funding and will bring together investment partners from various levels of government as well as the private sector. “These investments will be made strategically, with a focus on large, transformative projects such as regional transit plans, transportation networks and electricity grid interconnections,” the budget noted.

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“There are a lot of details that need to be fleshed out on this idea,” says Posiweko. “In principle, the idea is a good one, but I can’t really speak to it anymore than that because we don’t know what the details are. So whether it’s a good idea for institutional investors or not, it’ll all come down to how it’s structured, how it’s proposed, what the breakdowns are for the reutrns for institutional investors’ money.” 

Electronic T4 changes

The budget also allows employers to deliver T4 statements electronically to current employees, without receiving express consent beforehand.

“We’re really seeing this as a win-win-win, actually,” says Rachel De Grâce, manager of advocacy and legislative content at the Canadian Payroll Association. “A win for the employers who can go ahead in harnessing electronic efficiencies. A win for government because it’ll further support the government’s own requirement to receive T4s electronically by employers [with more than 50 staff]. And we feel it’ll even reduce the amount of paper T4s that the CRA is receiving, and this will further encourage more and more employees to file their taxes electronically.”

In 2016, a survey from the Canadian Payroll Association found that 95 per cent of employees prefer electronic T4s or don’t have a preference. A third of employers already provide them.

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De Grâce also notes each paper T4 costs $5 more than an electronic version, given costs such as paper, ink, envelopes, staff who deliver the forms and postage. There are 20 million Canadians who receive paper T4s but who don’t use them because they file their taxes electronically, she says. So collectively, employers will save $100 million each year by sending electronic copies instead.

Later in the year, the minister of national revenue will announce privacy safeguards, including giving print copies to employees on leave and former workers, the budget noted. Active employees can also request paper copies.

But De Grâce says employees should feel more secure with electronic T4s. “There were previous problems with the window envelopes where, if you shook the envelope a little bit, you could actually see someone’s social insurance number,” she notes. And even with better envelopes, the document can easily fall into the wrong hands, putting a lot of personal information at risk, she adds.

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Other budget changes include the elimination of the tax deduction tied to employee home relocation loans. “Evidence suggests that this deduction disproportionately benefits the wealthy, and does little to help the middle class and those working hard to join it,” the budget documents noted.

Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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Chas:

“De Grâce also notes each paper T4 costs $5 more than an electronic version, given costs such as paper, ink, envelopes, staff who deliver the forms and postage.”

Must have read Donald Trump’s “How to Say Anything Outlandish to Anybody and Be Believed by Everybody.”

Friday, March 24 at 2:36 pm | Reply

Mitchell L Gold:

shutting down the CSB is a dumb idea. rather it should be marketed around the world as a financial instrument to achieve responsible government. there is a way to do this that should raise significant funds for Canada to enable a lead global role for Canada. shutting it down is just plain ignorant.

Sunday, March 26 at 12:20 pm | Reply

Marlene Jefferson:

To Whom this concerns,

Having a CSB was good for me to save and to use as I wished to.
Now that I have retired from previous employment there
hasn’t been any contributions made but chose not to redeem all .
On the other side of the coin for those who do not agree with the program being tossed that’s their decision there are other ways of saving..
I’m great for being a part of the CSB program!!

Sincerely,!
Marlene Jefferson

Wednesday, June 14 at 1:41 pm | Reply

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