The State of the Economy: July 22nd, 2022
Hello All,
As most of you might know, the Canadian and global economy is experiencing some significant challenges.
The most significant impact for us, as individuals, can be seen in the guise of inflation. We have all noted the increase in prices of groceries and gas (I know for me it has started to become a common topic of discussion with friends and family as we bemoan the price of vegetables or contemplate the alternatives to driving our cars).
There are also other manifestations of a problematic economy which include a labour shortage, negative consumer sentiment, supply chain disruptions (emptier shelves and longer waiting times) and a plummeting stock market. Additionally rising interest rates, to curb inflation, are most notably being felt in the housing market.
All of these factors are leading to growing concerns that there will be a recession in Canada (and the US) in 2023. A recession, according to the National Bureau of Economic Research, is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. GDP refers to gross domestic product that essentially calculates all the money spent by consumers, businesses and the government.
Recessions are bad because as growth in the economy weakens, businesses tend to see lower sales which results in reduced expenditures, layoffs and increase in bankruptcies.
There are however some economists that think that if there is a recession, it won’t be too severe (also referred to as a “soft landing” in the jargon of economics). According to two economists at Scotiabank, pent up demand for “discretionary” (non essential) spending such as food and travel is still strong despite inflation. Whether this “fun” spending continues remains to be seen.
Additionally Canada's unemployment rate fell to 4.9 per cent in June, which is the lowest level since this metric started to be measured in 1976. This will counterbalance the effects of a potential recession since it will take some time for unemployment rates to rise meaningfully.
So while the risk of an economic contraction and recession is still high, there are some factors that indicate it might not be so bad. If the increase in interest rates (and other monetary policy measures by the government are successful) in curbing inflation, supply chain pressures start to ease up, and labour becomes more readily available, then there is hope that we will indeed experience a “soft landing”.
I received a question recently about the alternate way of reporting your GST/HST and QST. For those of you with minimal expenses, the Quick method of reporting can actually result in substantial savings, depending on your sales levels. More details in my article:
MON, JUN 08
Is the Quick Method of Reporting GST/HST & QST the Right Choice for your Small Business
If you are self employed or a small business with annual sales between $30,000 and $400,000, it might make sense to select the Quick Method of reporting your GST/HST and QST, which is essentially a
QuickBooks Tip - GST/HST/QST Quick Method
Normally, with QBO, you simply “file” the GST-QST return either monthly, quarterly or annually depending on your filing frequency. This closes the period and ensures any subsequent adjustments are carried over to the next period.
With the Quick Method, generally you would not reflect GST/QST and HST on expenses (if you are a service based business) or at the very least you would do a calculation of the GST/HST and QST owing outside of QBO (usually in a spreadsheet or calculator). Once calculated, you can adjust the amounts of sales tax collected and paid directly on the sales tax return in QBO. After selecting “prepare” return, you would click on “adjust” next to the line item to be adjusted. For the adjustment account, I generally create a new income account called “Quick Method differences” as this is still (of course) taxable income.
