On March 22, 2017, the federal Liberal government released their 2nd budget. For those of you who are not inclined to read the detail and commentary below, an executive summary follows.
- Capital gains inclusion rates – The status quo of 50% of capital gains inclusion remains… no change.
- Stock option deduction – No changes.
- Tax rates – No changes to personal or corporate tax rates.
- Consultation study/paper on private corporations to be released by the government – This study will eventually comment on common “planning” for private corporations and their shareholders with the intent of shutting down such plans.
- Work-in-progress election under section 34 to be eliminated – This is huge for professionals. Currently, WIP can be excluded from the calculation of taxable income. For taxation years that begin on or after March 22, 2017, affected professionals will not be able to utilize this accounting method, and will have to include WIP in their taxable income. Limited transitional rules will be available to help mitigate the impact of this change.
- Commodity straddle transactions – These transactions will now be ineffective in deferring income.
- Changes to the factual control rule for purposes of the association rules – In order to overcome the effect of a recent court case that restricted the application of the de facto control rule, the Budget proposes to introduce new subsection 256(5.11) which will override the court’s decision, and force taxpayers to consider all facts that are relevant in the circumstances.
- Canadian Exploration Expense: oil and gas discovery wells and renunciation – The Budget proposes to classify drilling and completion expenses for successful discovery wells incurred after 2018 as Canadian Development Expenses (CDE), rather than Canadian Exploration Expense (CEE). Additionally, the reclassification of the first $1 million of expenses renounced to flow-through share investors as CEE rather than CDE will no longer be allowed.
- Disability tax credit changes – The Budget proposes to add nurse practitioners to the list of medical practitioners that can certify eligibility for the disability tax credit in respect of certifications made on or after March 22, 2017.
- Consolidation of the infirm dependent, caregiver and family caregiver personal credits into the Canada Caregiver Credit – The intent of this new caregiver credit appears to consolidate all such credits into one. The combined credit, however, will no longer be available in respect of non-infirm seniors who reside with their adult children, where previously a reduced credit was available under the caregiver credit. These changes apply to 2017 and subsequent taxation years.
- Tuition tax credit changes – The Budget proposes to extend the eligibility criteria for the tuition tax credit to fees for an individual’s tuition paid to a university, college, or other post-secondary institution in Canada for occupational skills courses that are not at the post-secondary level, effective for 2017 and subsequent taxation years.
- Public transit personal tax credit – The Budget proposes to allow for a partial claim in respect of eligible expenditures prior to July 1, 2017. The credit will be fully eliminated for public transit costs incurred after June 2017.
- RESP and RDSP anti-avoidance changes – The anti-avoidance rules that currently apply to RRSPs, RRIFs, and TFSAs (the “advantage” rules, the “prohibited investment” rules, and the “non-qualified investment” rules) will be extended to RESPs and RDSPs.
- Corporate and beneficial ownership transparency – The federal government will collaborate with the provinces to “strengthen the transparency of legal persons and legal arrangements and improve the availability of beneficial ownership information”. In addition, the government is exploring ways to enhance the tax reporting requirements for trusts in order to improve the collection of beneficial ownership information.
- Cash purchase tickets for farmers – The government announced a consultation study on whether or not the existing income tax deferral available in respect of deliveries of listed grains is appropriate. Stakeholders should submit their comments by May 24, 2017.
- Increased funding to the Canada Revenue Agency (CRA) – The Budget announced another half a billion dollars in funding to the CRA over five years in an effort to prevent tax evasion and improve tax compliance.
Contact us, if you have specific question to understand how these changes affect you.