2017 Federal Budget Summary

Written by: Monica Alimchandani, CPA, CA, MTax, Partner at Sone Rovet Chasson LLP

March 23, 2017

The second budget of the Trudeau government was delivered on March 22, 2017. It did not increase personal or corporate income tax rates, and despite much speculation, it also did not increase the capital gains inclusion rates nor change the taxation of stock options.

Although the Federal budget did not feature significant tax changes, there are many measures that will impact businesses and individuals. Here are the highlights:

Businesses

  • Clarification of “factual control” to determine whether or not two corporations are associated with each other to prevent inappropriate access to benefits like the small business deduction and the 35% refundable Scientific Research and Experimental Development tax credit;
  • The government is continuing to review certain tax planning strategies involving private corporations including:
    • Income sprinkling
    • Holding passive investments inside a private corporation
    • Converting regular income into capital gains;
  • Elimination of the election to exclude the value of work in progress in computing income for certain professionals (i.e. accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors) for tax years that begin on or after March 22, 2017;
  • Elimination of the 25% investment tax credit for costs incurred for building or expanding child care spaces;
  • New mark-to-market election proposed with respect to derivatives held on income account;
  • New anti-avoidance rule for the use of offsetting derivative positions in certain straddle transactions;
  • Eligible small oil and gas corporations will no longer be able to treat the first $1 million of Canadian development expenses (CDE) as Canadian exploration expenses (CEE) for expenditures incurred after 2018, which are then renounced to flow-through share investors. CDE is deductible at a 30% declining balance basis, while CEE is fully deductible when incurred;
  • Elimination of the requirement that employers must obtain express consent from current active employees before electronically issuing T4 slips, as long as privacy safeguards are in place.
  • Providers of ride-sharing services are to register for the GST/HST and charge tax on their fares, effective July 1, 2017.

Individuals

  • Public transit non-refundable tax credit to be eliminated after June 30, 2017;
  • Employment insurance parental benefits will be extended to 18 months with a lower rate of 33% of average weekly earnings. EI benefits for the first 12 months remain unchanged at 55%;
  • A new caregiver credit to simplify the existing caregiver credit, infirm dependant credit and family caregiver tax credit. This new non-refundable credit will apply to caregivers whether or not they live with their family member. This new credit provides $6,883 for certain infirm dependents of a claimant or a claimant’s spouse or common law partner, and $2,150 for certain other situations. The credit will be reduced dollar-for-dollar by the dependent’s net income above $16,163;
  • Tuition tax credit of 15% extended to include fees for occupational skills courses not at the post-secondary level;
  • Nurse practitioners will be recognized in the list of medical practitioners that can certify individuals for the disability tax credit.

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