Budget 2017 – Business as Usual… and More Red Ink

BY GARRY KEILLER, EDMONTON

The cautious approach in the 2017 Federal Budget is warranted, in light of the uncertainties emanating from the United States. The Budget projects a deficit of $23 billion for 2016 – 2017, falling to $19 billion by 2021 – 2022. The total of these future deficits and the resulting impact on the national debt exceed those projected in last year’s Budget.

On the tax front, a few items, including a speculated increase to the capital gains inclusion rate, were conspicuously absent. As well, corporate and personal income tax rates remained unchanged.

several people crossing the street at a cross walk, the sun shining brightly in the background

IMPACTS TO PERSONAL TAXES

“Ineffective” Tax Measures Eliminated

The Budget proposes to eliminate tax measures that have shown to be ineffective and inefficient, and those being used on a limited basis and not achieving their intended purpose. These include the Public Transit Tax Credit, children’s fitness and arts credits, education and textbook credits for students, and deduction available for employee home relocation loans. The Budget also confirmed that the First-time Donor’s Super Credit for charitable donations will be discontinued in 2017.

Goodbye Canada Savings Bonds

The Canada Savings Bond program is no longer a cost-effective source of funds. Sales of new Canada Savings Bonds will end this year, but all outstanding bonds will be honoured.

“Sin” Taxes

The alcohol tax went up immediately and will continue to increase with inflation.

Caregiver Tax Credit

Those providing care-giving services to another may currently be eligible to claim three different tax credits. The Budget proposes simplifying the credit system for caregivers by replacing these credits with one new credit entitled the “Canada Caregiver credit” that will be effective for the 2017 and subsequent taxation years.

Tuition Tax Credit

The 15 percent tuition tax credit has not been available for occupational skills courses that are not at the post-secondary level and yet offered by a university or college. The Budget proposes extending the eligibility for these credits to such skills courses taken after 2016. These could include numeracy or literacy courses taken to improve job skills.

Non-accountable Expense Allowances

Tax exemption for non-accountable expense allowances for elected members of provincial and territorial legislative assemblies and certain municipal office holders will be eliminated. For 2019 and subsequent taxation years, a non-accountable allowance paid to these officials will be included in income.


IMPACTS TO BUSINESS TAXES

Anti-avoidance Rules Extended to RESPs and RDSPs

Certain anti-avoidance rules that apply to registered plans such as Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), and Registered Retirement Income Funds (RRIFs) will be extended to Registered Education Savings Plans (RESPs) and Registered Disability Savings Plans (RDSPs). These rules prevent registered plans from offering tax advantages that are excessive or unrelated to the benefits they provide. Generally, the changes will apply as of Budget Day — March 22, 2017 — and will likely have little impact on RESPs and RDSPs that offer conventional investment choices.

Tax Treatment of Mutual Funds Organized as Corporations

The Budget proposes to ease the tax treatment of mutual funds organized as corporations, also called corporate class funds. The proposal is to allow these mutual funds to reorganize with one or more mutual fund trusts on a tax-deferred basis, as mutual fund trusts are currently permitted to do. The proposed change, effective March 22, 2017, would also apply to segregated funds.

Bill-based Accounting for Designated Professionals

The Budget proposes to eliminate the ability of professionals such as doctors, lawyers, dentists, and accountants to exclude the value of their “work in progress” when calculating income. The change will be phased in and will take effect the first tax year following March 22, 2017.

Oil and Gas Exploration

Companies had previously been able to deduct expenditures for discovering previously unknown petroleum or natural gas reservoirs in the first year. In the future, Ottawa will allow only 30 percent of costs to be deducted each year on a declining basis. That means companies will pay more tax upfront and get gradual deductions, only if their projects are successful.

Definition of Taxi Service Expanded

The definition of a taxi service will be changed so that ridesharing services such as Uber will be taxed in the same way that traditional taxi services are.

Gifts of Medicine

Currently, corporations that make a gift of medicine to a charity are eligible to claim an additional deduction for the donation. This will be eliminated on gifts of medicine made on or after March 22, 2017.

Tax Planning Strategies Involving Private Corporations

The Government is currently reviewing tax-planning strategies involving private corporations. These include:

  • Reducing income taxes by shifting income from individuals in high personal tax brackets to family members in lower tax brackets
  • Holding a passive investment portfolio inside a private corporation, which may be financially advantageous for owners of the company but not to similar investors
  • Converting a private corporation’s regular income into capital gains to take advantage of lower tax rates compared to taxes on income

The Government is planning to issue a paper in the coming months outlining the perceived issues and responses in more detail.

Private Foundations

The Budget proposes prohibiting private foundations from receiving gifts of ecological property because of potential conflict of interest

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