The Liberal government delivered its second federal budget on March 22 in Ottawa.
While you’ve probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items relate to investments and taxes.
The budget focused on closing tax loopholes, cracking down on tax evasion, providing tax relief for the middle class and eliminating measures the federal government feels are ineffective, inefficient and disproportionately benefit the wealthy. But even then, there wasn’t that much.
Surprisingly, what was of most interest may be what was not in the budget. The budget does not increase personal or corporate income tax rates. Also, despite much speculation, it does not increase the capital gains inclusion rate. This is good news.
Here’s an overview of some of the budget[i] proposals:
The Canada Caregiver Credit system is to be simplified by replacing the Infirm Dependent Credit, Caregiver Credit and Family Caregiver Tax Credit with a new Canada Caregiver Credit for 2017 and subsequent years. The new credit is consistent with the amounts that could have previously been claimed and better targets those who need it most.
Nurse practitioners are to be added to the list of medical practitioners who can certify eligibility for the Disability Tax Credit.
The Medical Expense Tax Credit is extended to eligible expenses incurred by those who may not have a medical infertility condition but nonetheless incur costs for medical treatments to conceive a child.
The Tuition Tax Credit will be extended to tuition paid for occupational skills courses offered by a college or university that are below the post-secondary level.
The Mineral Exploration Tax Credit for flow-through shares is to be extended for another year.
The Public Transit Tax Credit will be eliminated effective June 30, 2017.
Confirmation that the first-time donor’s tax credit will expire in 2017.
Sales of new Canada Savings Bonds will end in 2017.
A number of anti-avoidance rules currently exist for registered plans like RRSPs, RRIFs and TFSAs to help ensure that the plans are in place for the right reasons and do not provide excessive tax advantages. Some of these are being extended to RESPs and RDSPs. They will generally not apply to conventional investments choices but could apply to “non-arm’s length” investments (e.g. investments from a related person) or to a “swap” for example.
Business tax measures
The government is particularly concerned with tax planning strategies using private corporations that provide unfair tax advantages. These strategies include:
Sprinkling income using private corporations to family members who are subject to a lower rate of tax.
Holding a passive investment portfolio inside a private corporation.
Converting a private corporation’s regular income into capital gains and taking advantage of the lower tax rates on capital gains.
The government is continuing to review these strategies and intends to release a paper in the coming months setting out the nature of these issues in more detail.
Elimination of the ability of certain professionals (i.e. accountants, lawyers, dentists, medical doctors, veterinarians and chiropractors) to elect to exclude their work in progress (“WIP”) from income, instead recognizing the income for tax purposes when billed. This election, which provides a tax deferral by allowing the costs associated with the WIP to be deducted in a year prior to the income being included is to be eliminated for tax years that begin on or after March 22, 2017 and includes a transitional period.
I hope you find these highlights useful. As you can see, the announced proposals are very broad and can have significant implications in particular for certain business owners and professionals.
If you’d like to discuss these and other federal budget initiatives and how they affect your financial strategies, please don’t hesitate to contact me.
[i] (Government of Canada, 2017)