PROPOSALS IMPACTING INDIVIDUALS
Public Transit Tax Credit eliminated – The public transit tax credit provides a 15% federal tax credit in respect of the cost of eligible transit passes. The Budget proposes to eliminate this credit effective July 1, 2017. Thus the cost of eligible public transit passes for use after June 2017 will no longer be eligible for the credit.
Tuition Tax Credit expanded – The Budget proposes to expand the application of the tuition tax credit to tuition fees paid to a post-secondary institution in Canada for occupational skills courses that are not at the post-secondary level. The course must be taken to provide or improve the student’s skills in an occupation, and the student must be turning 16 or older during the year. This measure will apply to eligible tuition fees for courses taken in 2017 or later.
Employment Insurance Benefits expanded – The Budget proposes to allow employment insurance (EI) claimants to pursue self-funded training and maintain their EI status. In addition, the Budget proposes to create a new EI caregiving benefit of up to 15 weeks to help eligible Canadians caring for critically ill or injured adult family members. Parents of critically ill children will continue to have access to up to 35 weeks of benefits.
The Budget also proposes to make EI parental benefits more flexible, by allowing parents to choose to receive EI parental benefits over an extended period of up to 18 months at a lower benefit rate, and allowing women to claim EI maternity benefits up to 12 weeks before their due date, expanded from the current limit of 8 weeks.
Caregiver Tax Credit consolidation – The Budget proposes to replace the existing infirm dependant tax credit, the caregiver tax credit, and the family caregiver tax credit with a new 15% non-refundable Canada Caregiver Credit for 2017 and subsequent years. The amount of the credit available is based on the family relationship between the caregiver and the infirm dependant. The amount of the credit will be indexed to inflation and reduced on a dollar-by-dollar basis by the dependant’s net income above $16,163 (in 2017).
Disability Tax Credit certification – The Disability Tax Credit (DTC) is a 15% non-refundable tax credit available to individuals with a severe and prolonged impairment in physical or mental functions. An eligible medical practitioner must certify the effects of the impairment as a condition of eligibility. The Budget proposes to add nurse practitioners to the list of medical practitioners that can certify eligibility for the DTC effective March 22, 2017.
Medical Expense Tax Credit expanded – Costs incurred related to reproductive technology are generally eligible for the medical expense tax credit where there is an existing medical condition such as medical infertility. The Budget proposes to extend the eligibility of the medical expense tax credit to include costs related to the use of reproductive technologies incurred by individuals, without a medical condition, who require medical intervention to conceive a child. This measure applies to 2017 and later years, but an individual may elect for this measure to apply to expenses incurred in the previous 10 years.
Principal Residence Exemption changes confirmed – The Budget confirms that the Government will proceed with a tax measure that had been announced on October 3, 2016 with respect to the exemption for capital gains on the disposition of a principal residence. These measures include the requirement to report the disposition of a principal residence beginning with the 2016 tax year, the limiting of the ability to claim the exemption to “eligible trusts”, and the inability to claim the “plus one factor” (with respect to the exemption) for individuals not resident in Canada at the time of purchase of the property.
Home Relocation Loans Deduction eliminated – Where an employee has received a loan by virtue of their employment on which the interest rate charged is less than the prescribed rate, the employee will be deemed to have received a taxable benefit based on the difference between these two rates. If the loan is an eligible home relocation loan, a deduction may be available to reduce the taxable benefit. The deduction is limited to the benefit associated with a $25,000 loan. The Budget proposes to eliminate the deduction applicable to benefits arising in 2018 and subsequent taxation years.
RESP and RDSP anti-avoidance rules – The Budget proposes that the “anti-avoidance” rules that currently apply to RRSPs, RRIFs and TFSAs be extended to Registered Education Savings Plans (RESPs) and to Registered Disability Savings Plans (RDSPs). The anti-avoidance provisions provide for taxes and penalties when one or more of the following occurs:
- The registered plan holds a “prohibited investment”, which is an investment in an entity in which the owner of a registered account or a family member has a significant interest,
- A “swap transaction” occurs, which means that an investment held inside a registered plan is exchanged for an investment of equal value that is held outside the registered plan, or
- There is a transaction under the registered plan that could confer an “advantage” on the owner of the plan.
With limited exceptions, this Budget measure will apply to transactions occurring and to investments acquired within an RESP or an RDSP after March 22, 2017.
PROPOSALS IMPACTING BUSINESS OWNERS
Billed-Basis Accounting eliminated – Certain taxpayers in designated professions (such as accountants, dentists, lawyers, etc.) are able to elect to not include the value of work in progress (WIP) in computing their business income for tax purposes. The election enables the expenses of incurring the WIP to be claimed without the corresponding revenue. Budget 2017 proposes to eliminate the ability for taxpayers in these designated professions to elect to use billed-based accounting effective for taxation years that begin on or after March 22, 2017, subject to certain transitional rules.
Ride Sharing Services to charge GST/HST – The Budget proposes to amend the GST/HST definition of a taxi business, effective July 1, 2017, to require providers of ride-sharing services, where the transportation is arranged for or coordinated through an electronic platform or system, to register for and charge GST/HST on their fares in the same manner as taxi operators.
Associated Corporation rules clarified – Under the Income Tax Act, “associated corporations” must share one $500,000 small business deduction limit. Association can occur in a variety of ways, including when one person either legally (de jure) or factually (de facto) controls two corporations. A recent court decision (McGillivray Restaurant Ltd. v The Queen, 2016) significantly limited the circumstances in which a person can be found to control a corporation as a question of fact by stipulating that one of the factors must be a “legally enforceable right and ability to effect a change to the board of directors or its powers, or to exercise influence over the shareholder(s) who have that right and ability.”
The Budget proposes that for the taxation years beginning on or after March 22, 2017, the Income Tax Act will be amended to clarify that, in determining whether factual control of a corporation exists, factors other than those outlined in the recent court decision may be considered.
This report specifically written and published by Investors Group is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal or tax advice. Clients should discuss their situation with their Consultant for advice based on their specific circumstances