The Minister of Finance, Bill Morneau, presented the 2017-2018 federal budget on Wednesday, March 22.
Leading up to the budget, there was speculation that the capital gains inclusion rate might be increased. Investors will be pleased to learn that the budget contained no such change. Similarly, there existed some speculation as to whether the stock option deduction might be eliminated. Again, the budget made no changes to the taxation of stock options. Furthermore, the budget did not include any new taxes or tax rate increases for personal or corporate income taxes. Having addressed what was not in the budget, we’ll now turn to summarizing some of the tax measures that were included.
Revisions to a number of personal income tax credits
Tuition tax credit
This credit is currently available to individuals taking post-secondary level courses at a university, college or other educational instutition, as well as occupational skills courses at a certified educational institution. The budget proposes to expand the tax credit in 2017 to include occupational skills courses (not at a post-secondary level) offered by a university, college or other post-secondary educational institution.
Canada caregiver credit
This new credit will replace the existing caregiver credit, family caregiver tax credit and the infirm dependent credit in 2017. The amount of the credit remains consistent with that available previously; however, a credit will no longer be available for taxpayers who have a non-infirm parent or grandparent, who is a senior, living in their home.
Public transit tax credit
This credit was previously available for costs incurred for eligible transit passes and electronic fare cards. This credit will be eliminated effective July 1, 2017.
Medical expense tax credit
For 2017, this credit is available for qualifying medical expenses in excess of the lessor of $2,268 and three percent of the individual’s net income. The definition of “qualifying medical expenses” will be expanded to include costs for the use of reproductive technologies (i.e. in-vitro fertilization), regardless of whether there is a medical infertility condition. This change is effective for 2017, but taxpayers will also be able elect for this measure to apply for any of the previous 10 years.
Other personal tax measures
Home relocation loans
Where an employee receives a loan due to their employment at a rate below the prescribed rate (one per cent for Q1 2017), the amount resulting from the difference between the two rates is to be treated as a taxable benefit. A deduction was previously provided for benefits arising from an eligible home relocation loan on a loan amount of up to $25,000. This deduction will be eliminated beginning in 2018.
Anti-avoidance rules for RESPs and RDSPs
A number of anti-avoidance rules are already in place for other registered accounts (i.e. TFSAs, RRSPs and RRIFs) and will now be expanded to also apply to RESPs and RDSPs:
- the advantage rules, which help prevent the exploitation of tax attributes of a registered plan (e.g., by shifting returns from a taxable investment to a registered plan);
- the prohibited investment rules, which generally ensure that investments held by a registered plan are arm’s length “portfolio” investments; and
- the non-qualified investment rules, which restrict the classes of investments that may be held by a registered plan.
The rules are not anticipated to impact RESP and RDSP account holders who are invested in ordinary portfolio investments such as the Compass portfolios and the ATBIS Asset Class Pools.
Further review of tax planning strategies involving private corporations
In the budget speech, the Minister of Finance stated that “Our review of federal tax expenditures, for example, highlighted a number of issues around tax planning strategies using private corporations. Strategies that can result in some very wealthy individuals getting unfair tax breaks at the expense of others.” The budget highlighted three examples of such strategies:
- sprinkling income using private corporations;
- holding a passive investment portfolio inside a private corporation; and
- converting a private corporation’s regular income into capital gains.
Owners of private corporations will want to stay tuned for the government’s further review ofthese issues and the upcoming paper that is to be released.
Oil & gas discovery wells
Costs incurred for the drilling of an oil & gas discovery well are currently treated as a Canadian exploration (CEE), which is fully deductible in the year incurred. Starting in 2019, such costs will generally be treated as a Canadian development expense (CDE) which is a 30 per cent deductible in the year incurred. An exception will exist for expenses incurred before 2021 where a written agreement to incur the expenses was in place prior to March 22, 2017.
Billed-basis accounting refers to the ability of certain professionals (i.e. accountants, lawyers, medical doctors, dentists, veternarians and chiropractors) to exclude work in progress (WIP) in calculating their income, and instead, defer reporting this income until it has been billed. The budget proposes to eliminate the use of billed-basis accounting for professionals. To provide some transitional relief, for the first taxation year that begins after March 22, 2017, 50% of the lesser of the cost and fair market value of WIP will be considered inventory.
Consultation on cash purchase tickets for farmers
Currently, where a farmer receives a cash purchase ticket that is payable in the following year for the delivery of a listed grain, the income is reported in the following year. The budget announced a consultation on this income deferral. Farmers currently benefiting from this measure may wish to submit comments by the May 24, 2017 deadline.
Investment fund mergers
The budget proposes to extend the rules that permit the reorganization of certain investment funds on a tax-deferred basis. These changes will not impact the Compass portfolios or ATBIS Asset Class Pools but might impact client holdings at other firms.
The above summary only highlights certain budget items. Other items contained in the budget will be relevant for some taxpayers. For further details regarding all budget initiatives, please see the Government of Canada's 2017 budget documents.
The information provided in this article is a simplified general summary and is not intended to replace or serve as a substitute for professional advice. Professional tax advice should always be obtained when dealing with taxation issues as each individual’s situation is different. This information has been obtained from sources believed to be reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. This information is subject to change and ATB Securities Inc., ATB Investment Management Inc. and ATB Insurance Advisors Inc. reserves the right to change the information without prior notice, and does not undertake to provide updated information should a change occur. ATB Financial, ATB Investment ManagementInc., ATB Securities Inc. and ATB Insurance Advisors Inc. do not accept any liability whatsoever for any losses arising from the use of this document or its contents.