The March 22, 2017 Federal Budget did not contain any measures affecting the taxation of capital gains, despite the significant increase in rumours to this effect in the weeks prior. In fact, there are no changes to any personal or corporate income tax rates in this Budget. A summary of the main provisions of the Budget is found below.
Professionals and Work in Progress
Most incorporated and unincorporated professionals such as lawyers, dentists, medical doctors and accountants currently recognize income for tax purposes upon billing for a service as opposed to when the service is rendered. This has resulted in a significant deferral of income for many professionals. The Budget proposes to reduce this deferral to the profit component on work in progress. This rule is effective for taxation years beginning on or after March 22, 2017. As a transitional measure, only 50% of the additional amount is included in income in the first year, but thereafter the full amount must be included in income.
Subject to certain specific exemptions, the Budget aims to eliminate 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 March 22, 2017.
A new election will allow taxpayers to mark to market all of their eligible derivatives for taxation years beginning on or after March 22, 2017. Once made, the election will remain in effect for all subsequent years, unless revoked with the consent of the Minister of National Revenue.
In general terms, an eligible derivative will be any derivative held on income account that meets certain conditions, including that the derivative is valued in accordance with accounting principles at its fair value in the taxpayer’s audited financial statements or otherwise has a readily ascertainable fair market value.
Once an election is made by a taxpayer, the taxpayer will be required to annually include in its income the increase or decrease in value of its eligible derivatives. Furthermore, the recognition of any accrued gain or loss on an eligible derivative at the beginning of the first election year will be deferred until its disposition if it was previously subject to tax on a realization basis.
Mutual Fund Conversions
Beginning on or after March 22, 2017, mutual fund corporations with multiple classes of shares will be allowed to convert into multiple mutual fund trusts on a tax-deferred basis.
De facto Control
For taxation years beginning on or after March 22, 2017, and in response to a recent court case, the definition of de facto control of a corporation is expanded to clarify that the determination of direct or indirect influence shall be made with reference to all relevant factors and not limited by the fact that a person does not have a legally enforceable right to influence the board of directors of the corporation or the shareholders who vote the shares.
Geothermal Energy Equipment
Certain eligible geothermal energy equipment acquired for use after March 21, 2017 that is used for the purpose of heating or generating electricity will be eligible for accelerated depreciation.
Donations of Medicine
The additional deduction for the donation of medicine from inventory to a registered charity will be eliminated for gifts made after March 21, 2017.
Investment Tax Credit for Child Care Spaces
The 25% investment tax credit available to child care facilities for costs to build or expand child care spaces will be eliminated for expenses incurred after March 21, 2017. However, expenditures incurred prior to 2020 will remain eligible if they were provided for in a written agreement in effect on March 21, 2017.
Certain income earned by foreign branches from the insurance of Canadian risks will be taxable in Canada for taxation years of Canadian life insurers beginning on or after March 22, 2017. Anti-avoidance rules have been added to protect the integrity of the proposed rule.
Caregiver Tax Credit
The Budget proposes to replace the infirm dependent credit, caregiver credit and family caregiver credit with the Canada Caregiver Credit effective for 2017. The base for the credit, depending on the circumstances, can be up to $6,883 per dependent and is phased out gradually where the dependent’s net income is above $16,163.
Disability Tax Credit
The disability tax credit provides a tax credit for individuals with severe and prolonged physical or mental impairment when certified by a medical practitioner. The Budget expands the definition of a medical practitioner, for certifications made on or after
March 22, 2017, to include nurse practitioners within the scope of their practice.
Medical Expense Tax Credit
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.
Tuition Tax Credit
The definition of tuition fees eligible for the tuition tax credit is being broadened to include courses for occupational skills when offered by a university, college or other post-secondary institution in Canada when these courses are not at the post-secondary level. A student in such a program may also be eligible for certain exemptions from taxation on scholarships and bursaries. These measures are effective beginning with courses taken in 2017.
Public Transit Tax Credit
The public transit tax credit for eligible public transit passes will be eliminated effective July 1, 2017.
Home Relocation Loans
When an employer provides a loan to an employee in a relocation situation with an interest rate below the prescribed rate, the deemed interest benefit had previously been deductible up to a maximum amount. Starting January 1, 2018, the entire deduction will be eliminated.
Electronic Distribution of T4 Information Slips
Employers will be allowed, subject to certain conditions, to provide active employees with electronic copies of T4 information slips without requiring their express consent, effective as of 2017.
The 15% investment tax credit on specified mineral exploration expenses is being renewed for an additional year until March 31, 2018.
Allowances for Elected Individuals
Elected provincial and municipal officials will be taxed on allowances they receive that do not require the submission of receipts or any explanation of expenses, starting with the 2019 taxation year.
RESPs and RDSPs
Effective March 23, 2017, the current anti-avoidance rules concerning non-qualified investments applicable to registered plans such as registered retirement savings plans (RRSPs) will also be applicable to registered education savings plans (RESPs) and registered disability savings plans (RDSPs). Certain transitional rules will apply.
The ecological gifts program provides tax incentives to donors of ecologically sensitive land (“Ecogifts”), including a donation of up to 100% of net income in the year or the following 10 years. In addition, capital gains on the donation of such property may be exempt from tax. If the use of the land is subsequently changed, a 50% tax can be levied on the fair market value of the land. The program is administered by the Environment and Climate Change Canada (ECCC).
In order to better protect the integrity and mission of the program, the Budget proposes a series of changes for transactions or events that occur on or after March 22, 2017.
- The application of the 50% tax will be broadened to ensure that subsequent transactions for consideration do not limit the application of the tax.
- Private foundations will no longer be eligible to receive Ecogifts.
- The ECCC will have the ability to determine if the use of the land has changed and the current power of the ECCC to approve recipient charities on a gift-by-gift basis will be extended to the approval of municipalities and public bodies, which were previously automatically eligible.
- For Quebec properties, the rules will be broadened so that, under certain conditions, donations of personal servitudes will qualify as Ecogifts.
Taxi and Ride-Sharing Services
Effective as of July 1, 2017, all ride-sharing services providers, such as Uber drivers, will be required to register for GST/HST purposes and charge GST/HST on their fares, as is currently the case for taxi operators.
GST/HST Rebates to Non-Resident Individuals and Tour Operators
The rebate in respect of accommodations will be repealed as of March 22, 2017. Transition rules apply to tour packages or accommodations made after March 22, 2017 but before January 1, 2018, if all the consideration for the supply is paid before
January 1, 2018.
The tobacco manufacturer’s surtax of 10.5% on profits is eliminated. To compensate, the excise duty rate on cigarettes and other tobacco products will increase as of
March 22, 2017.
Excise duty rates on alcohol products will increase by 2% as of March 22, 2017. Starting in 2018, the rates will be automatically adjusted by the Consumer Price Index on April 1 of every year.
This drug, used in opioid overdose treatment, will be added to the list of GST-free non‑prescription drugs.
About Richter : Founded in Montreal in 1926, Richter is a licensed public accounting firm that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedIn, Facebook, and Twitter.