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The 2017 Federal Budget: What Can We Expect?

31/01/2017


With Canada’s 2017 federal budget to be released in the near future, it’s a good time to start considering what tax measures the federal government might already be mapping out that may have a focus on the following: 

  • Tax related recommendations prepared in the Report of the Standing Committee on Finance by the House of Commons surrounding the national budget priorities of 2017.
  • Tax changes aligned with the Liberal party’s campaign platform that have not yet been introduced.  
  • Other potential industry and/or sector related tax changes.

An Overview

On December 7, 2016, the House of Commons issued a Report of the Standing Committee on Finance, “Creating the Conditions for Economic Growth: Tools for People, Businesses and Communities.” This report may be used as a blueprint for the upcoming budget in addition to the government’s reaction to changing economic and political circumstances both domestically and world-wide.

Key tax and business related considerations from the Report include:

Intergenerational transfer of business:

The Report recommended that the government undertake a comprehensive review of the tax implications of intergenerational transfers of businesses. The review will take into account the more generous provisions relating to the intergenerational transfer of farming and fishing businesses with a view to potentially allowing other business to be transferred to the next generation with little tax impact.  The Report also discussed the possibility of widening the scope of the existing provisions for farming and fishing to include transfers to family members who are not spouses or children of the transferor.

Tax simplification:

The Report also recommended that the government undertake a comprehensive review of Canada’s tax system.  Some of the topics mentioned in the report with respect to the review are:

  • Simplifying the Income Tax Act;
  • Reviewing and eliminating some of the wide range of tax preferences, subsidies and measures currently in place (for example: the elimination in 2016 of the tax credits for children’s fitness activities); and
  • Reviewing and amending CCA rates to reflect on-going changes in technology and the useful life of assets, and specifically rates related to the mining and telecommunications industries.

In addition to tax simplification on a comprehensive basis, some other proposals highlighted in the Report include:

For Individuals

Seniors:
Implement a “senior’s index” to determine the amount by which Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits should be increased.

Disability tax credit:
Review the effectiveness of the Disability Tax Credit (DTC) and consider making it refundable.  Take action to include all activities related to insulin administration into the eligibility criteria for the DTC.

Registered Retirement Savings Plan (RRSP):
Improve the flexibility of the RRSP Home Buyers Plan. Currently, the HBP is available to first time home buyers. The budget could include access to the HBP for home purchases related to job relocation, moves caused by the death of a spouse, marital breakdown or to accommodate the care of an elderly family member.

Artists:
Amend the ITA, along with the Copyright Act to provide for artists’ resale rights in Canada.

Business

Patents:
Develop a patent program (similar to Quebec’s) that subsidizes expenses incurred by small and medium-sized businesses obtaining their first patent.

Income earned by storage facilities and campgrounds:
Amending the ITA to allow income earned by businesses operating storage facilities and campgrounds to be recognized as “active business income” for purposes of determining eligibility for the small business deduction.

Goods and Service Tax (GST):
Remove GST on new capital investments in affordable rental housing.

Employment Insurance (EI):
Waive the first 12 months of employer premiums for permanent employees between the ages of 18 and 24.

Mining sector specific:
The Report recommends a review of the Atlantic Investment Tax Credit, the Corporate Mineral Exploration and Development Tax Credit, deductions for Canadian Exploration Expense and Canadian Development Expense, and accelerated Capital Cost Allowance (CCA) deductions.

Telecommunications specific:
Encourage participation in a rural broadband program funded through changes to the CCA rates for classes 8, 42 and 46.

Agriculture specific:
The Report recommends reversing the previous government’s reductions in funding for AgriStability and AgriInvest.  It also recommends enhancing AgriInvest by allowing farmers to make a withdrawal from Fund 1 without first having to make a withdrawal from Fund 2, provided that any such withdrawal is invested in eligible projects.

Further Potential Tax Changes

Although not specifically mentioned in the Report, Canada’s 2017 budget could also address the following topics:

President Donald Trump’s tax platform:
President Donald Trump promised significant cuts to American corporate and individual tax rates. Canada’s budget may respond to the potential changes to remain competitive.

Capital Gains Tax rates:
The budget may contain provisions to increase the amount of capital gains included in taxable income to address the current disparity in rates applicable to capital gains as compared to dividends.  Although much media attention has been paid to this issue, it was not addressed in the Finance Report.

Innovation:
The Report states that this year’s budget will commit to “redesign and redefine how it supports innovation and growth” through a new “innovation agenda,” with a number of funding opportunities in the budget to boost both academic science and research, and private sector innovation. There is also discussion of reforming the Scientific Research & Experimental Development (SR&ED) program.

Mining exploration tax credit for flow-through shares:
As done in previous years, this credit could be extended by an additional year, in which case it would be applicable to flow-through share agreements entered into before the date of April 1, 2018.

Base erosion and profit shifting (BEPS):
The Organisation for Economic Cooperation and Development (OCED) and Group 20 (G20) have been working on “BEPS” tax strategies that allow for mismatches in international rules to minimize a corporation’s overall tax. The upcoming federal budget may provide further guidance as to how the government will proceed on outstanding recommendations in the OECD’s final reports surrounding BEPS.

The CRA:
Work to make the CRA more individually focused by contacting those who are not receiving the benefits they are entitled to and offering to help complete returns for lower-income individuals.

For more information on how you may be impacted by the 2017 federal budget, contact Loren Kroeker, CPA, CA, Senior Vice President, Taxation Services at 250.753.8251 or [email protected]