On 22 March 2017, the Minister of Finance, Honourable William Francis Morneau tabled the Liberal government's second budget (hereinafter known as the Budget) after winning the federal election in 2015. The following are not an exhaustive list of changes proposed by the Budget.
Selected Personal Tax Changes
After 30 June 2017, the 15% non-refundable on public transit passes will be eliminated as the government believes that the tax incentive fails to encourage the use of public transit and reduce greenhouse gas emissions.
Effective 2017 and later taxation years, the Budget will replace the Caregiver Amount Credit (line 315), the Infirm Dependant Amount Credit (line 306), and the Family Caregiver Amount Credit with a new Canada Caregiver Credit. This new credit amount will be:
$6,883 re infirm dependants who are parents, grandparents, siblings, aunts, uncles, nieces, nephews, adult children of the claimant or of the claimant's spouse or common law partner
$2,150 re
an infirm dependent spouse or common-law partner for whom the individual claims the spouse or common-law partner amount,
an infirm dependant for whom the individual claims an eligible dependant credit, or
an infirm child who is under 18 years of age at the end of the tax year.
The dependant will not be required to live with the caregiver in order for the caregiver to claim the new credit. It will not be available for non-infirm seniors who reside with their adult children or grandchildren. Furthermore, this credit will be reduced dollar-for dollar by the dependant's net income over $16,163 in 2017,
For 2018 and later years, the Budget eliminated the
home relocation loan benefit deduction per Section 110(1)(j) of the Income Tax Act
The amount of the deduction is the least of:
bullet the amount of the deemed taxable benefit from the home relocation loan
bullet the amount of the interest calculated at prescribed rates, if the loan had been for $25,000, and expired on the earlier of
the expiry date of the loan, and;
the fifth anniversary date of the loan, and;
the amount included in income under s. 80.4 for all loans.
. A loan to an employee would be considered a home purchase loan if it is used to acquire or repay a debt that was incurred to acquire a dwelling, or a share of the capital stock of a cooperative housing corporation, as a residence of the employee or a person related to him. Subsequent debt incurred to repay a home purchase loan would still be considered a home purchase loan.
The loan would be considered a home relocation loan if:
The employee commenced employment at a new work location in Canada,
Because of the new work location, the employee moved from his old residence to the new residence, which will be his ordinary place of residence,
The loan, received by the employee or his spouse, is used to acquire the new residence,
The distance between the old residence and the new work location is at least 40 km greater than the distance between the new residence and the new work location, and
bullet The employee designates the loan as a home relocation loan (an individual may not have more than one home relocation loan at any time).
Where a home purchase or home relocation loan has a term exceeding five years, at the end of five years the balance outstanding on the loan will be deemed to be a new home purchase loan. This would mean that the maximum prescribed rate will be reset to the prescribed rate that is in effect at the beginning of the sixth year.
From 2017 and later taxation years, eligibility criteria of tuition tax credit will be broadened to include courses for occupational skills (or improving the taxpayer's skills) when offered by a university, college or other post-secondary institution in Canada when these courses are not at the post-secondary level and the taxpayer has attained the age of 16 before the end of the year.
The definition of medical expense eligible for the medical expense tax credit is being expanded to include medical costs associated with fertility treatments for those without a medical infertility condition, which will extend coverage to same-sex and single parents. This change is available for 2017 and later years. Additionally, an election can be filed to claim the credit for any of the immediately preceding 10 taxation years.
The Budget proposed to allow employers to distribute T4 slips electronically to current active employees without having to obtain express consent from the employees in advance. However, sufficient privacy safeguards must be in place before electronic T4s can be sent electronically. Employers must issue paper copies to employees who request them.
As of November 2017, the Budget will eliminate the Canada Savings Bonds program alleging it brings in too little and costs too much to run. The savings bonds have lost popularity to other investment opportunities in recent years. The program dates back to 1946 and, at its height in the late 1980s, accounted for $60 billion in government debt, or about 45% of the total will become history.
Parents can choose to take a longer leave at a lower employment benefit rate of 33% of their eligible average weekly earnings instead of the 55% rate currently offered for a 12-month leave. Furthermore, if a maternity leave needs to start before a child is born, 12 weeks will now be offered instead of eight.
Selected Business Tax Changes
Billed-basis accounting election gets nixed in the Budget
Billed-basis accounting for designated professionals (such as accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors) is eliminated by the Budget. Designated professionals will no longer be able to exclude the value of work in progress in computing their income. The end of billed-based accounting prohibits these taxpayers to defer taxes by permitting the costs associated with work in progress to be expensed without the matching inclusion of the associated revenue.
The proposed measure will apply to taxation years that begin on or after Budget Day.
To mitigate the effect on taxpayers, a transitional period will be provided to phase in the inclusion of work in progress into income.
For the first taxation year that begins on or after Budget Day, 50% of the lesser of the cost and the fair market value of work in progress will be taken into account for the purposes of determining the value of inventory held by the business under the Income Tax Act.
For the second, and each successive, taxation year that begins on or after Budget Day, the full amount of the lesser of the cost and the fair market value of work in progress will be taken into account for the purposes of valuing inventory.
The Income Tax Act recognizes two forms of control of a corporation: de jure (legal) control and de facto (factual) control. The concept of the latter is broader than the former and is generally used to ensure that certain corporate tax preferences are not accessed inappropriately. Control of corporations could have far reaching tax consequences.
Recent jurisprudence held that, in order for a factor to be considered in determining whether factual control exists, it must include “a legally enforceable right and ability to effect a change to the board of directors or its powers, or to exercise influence over the shareholder or shareholders who have that right and ability”. This precedent limits the scope of factors that may be taken into consideration in determining whether factual control of a corporation exists. It is not intended from a Canada Revenue Agency policy perspective that the factual control test be dependent on the existence of such a legally enforceable right, or that factors that do not include such a right ought to be disregarded.
To close the loophole surrounding control of corporations after the hand down of this court decision, the Budget proposed all factors relevant in the particular situation, not just those that meet the criteria set out in the recent jurisprudence, shall be included in assessing whether or not de facto control is present. This ensures that taxpayers cannot inappropriately access certain tax preferences, such as shrewd tax planning to take advantage of expansion beyond the $500,000 income threshold of small business deduction to qualified Canadian controlled private corporations. This measure will apply in respect of taxation years that begin on or after Budget Day on 22 March 2017.
Subject to certain specific exemptions, the Budget eliminated the benefit of straddle transactions. New measures will target situations where a taxpayer claims a loss in a taxation year on a particular position and either it or a connected person holds an offsetting gain position that eliminates all or substantially all of the taxpayer’s loss, if the arrangement was entered into with the main purpose of deferring, reducing or avoiding income tax. These measures will apply with positions or offsetting positions that are entered into, acquired, renewed, extended or become owing on or after 22 March 2017.
The Budget amended the definition of a taxi business to require providers of ride-sharing services to register for the GST/HST and charge tax on their fares in the same manner as taxi operators, who do not qualify as "small suppliers" for GST/HST. This will be effective July 1, 2017. Taxi and Ride-Sharing Services like Uber will be affected.
Effective 23 March 2017, the current surtax on profits from the manufacture of tobacco or tobacco products in Canada will be eliminated and replaced by increasing the excise duty rate on cigarettes. Inventories of cigarettes held by manufacturers, importers, wholesalers and retailers at the end of March 22, 2017 be subject to a tax of $0.0265 per cigarette (subject to certain exemptions).
Effective 23 March 2017, the Budget proposes to increase excise duty rates on alcohol products by 2%. Unlike tobacco or tobacco products, no special inventory tax will apply to alcohol products on which duty has been paid.
Remarks
The budget deficit for 2016-17 rose slightly to $23 billion, and forecasts a deficit for the coming year of $28.5 billion, including a $3-billion "risk adjustment." Deficits are projected to gradually decline over the next 5 years but will still remain at $18.8 billion in 2021-22. This implies that the national debts will continue to rise with no reduction in the foreseeable future. Our children will bear the burden of our spendings.
[This page was added on 23 March 2017, last revised 23 March 2017.]
