On Wednesday March 22, 2017, Finance Minister Bill Morneau tabled the 2017 Federal Budget. The most notable items NOT affected by this budget were the personal tax rates, corporate tax rates and capital gains rates. Rumours were swirling around significant changes being made to these, none of which happened.
Here are 10 things that we think you should know about how the measures proposed in Budget 2017 may affect the taxes you have to pay:
1. Innovation: Budget 2017 proposes a number of new measures with the goal of enhancing innovation support in Canada – notably:
- To provide up to $1.4 billion in new financing, on a cash basis, to help Canada’s clean technology firms grow and expand.
- To provide up to $950 million on a competitive basis in support of a small number of business-led innovation “superclusters” that have the greatest potential to accelerate economic growth.
- To fund a new Venture Capital Catalyst Initiative with $400 million that will increase late-stage venture capital available to Canadian entrepreneurs.
- To provide $125 million to launch a to promote collaboration between Canada’s main centres of expertise and position Canada as a world leading destination for companies seeking to invest in artificial intelligence and innovation.
- To provide Futurpreneur Canada with $14 million over two years to continue its work of supporting the next generation of entrepreneurs.
- To evaluate current government funding programs (including SR&ED credits) for effectiveness and efficiency. The implementation of the innovation measures above will set out to replace some current funding programs.
What does this mean? The Government is planning on investing in supporting Canadian innovation. Over the coming months the application process for these programs will be finalized and companies will be able to apply.
2. Tax Planning Using Corporations: In Budget 2017, the Government commits to reviewing the use of private corporations by Canadians to avoid or minimize the tax that they pay. The main areas of tax planning within a private corporation being targeted for review are:
- Income splitting
- Passive investment portfolios
- Conversion of regular income into capital gains
What does this mean? The Federal Government is targeting some existing planning using private corporations to minimize taxes paid by individuals. As the Government releases more information, we’ll be watching to identify who is affected.
3. Access to CCPC Status: Budget 2017 proposes to clarify the definition of control, one of the criteria around access to Canadian-Controlled Private Corporation (CCPC) status. This status entitles a corporation to the $500,000 federal small business deduction, a 35% refundable rate on eligible SR&ED expenditures along with other benefits.
There are two types of control over a corporation: legal control and factual control. Due to a recent court case, the determining factors of factual control have been adjusted to include all of those relevant in the circumstances, and not only the ability to influence the Board of Directors.
What does this mean? Although an individual may not have voting control of a corporation, other factors could still lead to the conclusion that that individual controls the corporation. The small business deduction will have to be shared among all corporations within that individual’s control.
4. Stop-Loss Straddle Transactions: Before Budget 2017, a taxpayer was able to defer tax by entering into two transactions that were expected to result in an equal gain and loss (ie. through derivatives trading), trigger the loss prior to the year end, then realize the gain at the beginning of the following year. The result of this transaction is that the loss would reduce taxes owing in the year it was realized, and then the gain would not be taxed for another year. If passed by parliament, the proposed rule will apply to any loss realized on a purchase made on March 22, 2017 or thereafter. There are some exceptions to this new rule, let us know if you have any questions.
What does this mean? If you are considering the purchase of a long and short position in a stock at the same exercise price to facilitate the deferral of tax into the following year by straddling the loss and gain over the year end, the loss will be disallowed. This is just one example.
5. Caregiver Credit System: Budget 2017 proposes to simplify and improve existing tax measures for caregivers, persons with disabilities, and students. The Infirm Dependent Credit, the Caregiver Credit, and the Family Caregiver Tax Credit will be phased out and replaced with the new Canada Caregiver Credit. This credit will apply to caregivers whether or not they live with their family member, and help families with caregiving responsibilities.
6. Medical Expense Tax Credit: Budget 2017 proposes to clarify the application of the Medical Expense Tax Credit so that individuals who require medical intervention in order to conceive a child are eligible to claim the same expenses that would generally be eligible for individuals on account of medical infertility.
7. Public Transit Tax Credit: Budget 2017 proposes to eliminate this credit as evidence suggests that this credit has been ineffective in encouraging the use of public transit and reducing greenhouse gas emissions.
8. Extended Parental Leave Benefits: Budget 2017 proposes to make EI parental benefits more flexible by allowing parents to opt to receive benefits over an extended period up to 18 months. The benefit will be available at a lower benefit rate of 33% of average weekly earnings, instead of the current rate of 55%. For example, in 2017 you could expect to receive a maximum EI benefit of approximately $326 per week if taking the full 18 months as opposed to $543 per week if taking 12 months of parental leave.
Expectant mothers can now also choose to access their maternity benefits for up to 12 weeks before their due date, increased from the current 8 weeks.
9. Employment Insurance Caregiving Benefit: Budget 2017 proposes to create a new EI caregiving benefit of up to 15 weeks. The new benefit will cover a broader range of situations where individuals are providing care to an adult family member who requires significant support in order to recover from a critical illness or injury. Parents of critically ill children will continue to have access to up to 35 weeks of benefits, with additional flexibility to share these benefits with more family members.
10. Ride Sharing: Budget 2017 proposes the definition of a taxi business for GST/HST purposes be amended to ensure ride-sharing businesses like Uber are subject to the same rules as taxis and required to charge tax on their fares effective July 1 ,2017.
To view the tax measures supplementary information to Budget 2017, please see the Department of Finance’s website here.
Some of these changes may have an impact on your personal and business taxes so please touch base with your accountant if you have any questions!