Tax Changes from the 2017 Federal Budget

Posted on Mar 27, 2017

The 2017 Federal budget, tabled on March 22, 2017, contained a number of minor personal and corporate tax changes, but did not change the capital gains inclusion rate as had been widely speculated.  However, the budget also identified a continued review of tax planning arrangements involving private corporations which may result in significant future tax changes.  Below is a brief overview of the proposed tax changes most relevant to private corporations and individuals. Please call our office if you have any questions or would like to arrange a meeting. We would be pleased to discuss how these measures may apply to your situation, assist you with the preparation and filing of your tax returns, and discuss tax planning opportunities.

Personal Tax Changes

Medical Expense Tax Credit

Clarification was provided that confirmed medical intervention required to conceive a child is eligible as a medical expense.

Disability Tax Credit

Nurse practitioners are now included on the list of medical practitioners that can certify eligibility for this credit.

Canada Caregiver Credit

This is a new credit that will consolidate the Caregiver Credit, Infirm Dependent Credit, and Family Caregiver Credit into a single credit.  The most significant impact is that claims for non-infirm seniors residing with their adult children will no longer be allowed.

Donation Credits

Ecological gifts can no longer be made to private foundations, but can now be made to municipal and public bodies performing government functions (ie: First Nations).

The First-Time Donor’s Super Credit will expire after 2017.  So it will be available for 2017, but not for future years.

Public Transit Credit

This credit will be eliminated effective July 1, 2017.  So a claim can still be made in 2017 for transit use prior to this date.

Elected Officials – Non-accountable Allowances

These allowances will no longer be exempt from tax.

Home Relocation Loan Deduction

This deduction has been eliminated for benefits arising after 2017.

 

Mineral Exploration Tax Credit

This credit has been extended for one year, to flow-through share agreements entered into on or before March 31, 2018.

Registered Accounts – Anti-Avoidance Rules

The budget extended certain anti-avoidance rules applicable to TFSA, RRSP, and RRIF accounts, to also cover RESP and RDSP accounts.

Corporate Tax Changes

Professionals’ Work in Progress

Prior to 2017, certain designated professionals (accountants, lawyers, medical doctors, dentists, veterinarians, and chiropractors) could exclude the value of their work in progress (“WIP”) when computing their income.  This elective exclusion will be eliminated in 2017 with a phase-in over two years.  So if a professional, or firm, has a December 31 year-end, it will be required to include 50% of its WIP in income in 2017 and 100% of its WIP in income in 2018 and subsequent years.  WIP is to be valued at the lower of cost and fair market value.

Segregated Funds and Mutual Funds

Technical rules were introduced to facilitate the merger of segregated funds and the conversion of mutual fund corporations into mutual fund trusts.

Financial Instruments

The budget introduced an election to mark-to-market derivatives held on income account.  It also introduced anti-avoidance rules to curb “straddle” transactions used to shift income into a subsequent tax year.

Determination of Control

An additional provision has been proposed to ensure that the determination of de facto control is not limited to “a legally enforceable right…to effect a change to the board of directors…or to exercise influence of the shareholder(s) who have that right and ability” as laid out in the recent Federal Court of Appeal decision in McGillivray Restaurant v. the Queen.

Consultation – Cash Purchase Tickets (ie: Deferred Grain Cheques)

Although no changes were proposed in the 2017 budget, a consultation process was announced with the intention to review the ongoing utility, and potential elimination, of the ability for farmers to defer income into the next tax year using cash purchase tickets.

Review and Proposals – Private Corporations

The budget indicated that a paper will be released in the coming month setting out certain tax planning strategies involving private corporations that the government views as solely benefiting “wealthy” Canadians, along with proposed policy responses.  This is in line with the government’s election platform.  It is anticipated that this paper may address areas including: payment of dividends to various family members with a direct or indirect interest in the corporation, sheltering income at lower corporate tax rates and accumulating a passive investment portfolio, and planning related to the tax rate differential between capital gains and dividend income.

Other Measures

GST/HST for Uber and Ride Sharing Services

Effective July 1, 2017, the definition of a taxi business was expanded to effectively include Uber and other ride sharing services in order to end uncertainly over whether such drivers are considered tax businesses.

Employment Insurance – Caregiving Benefit

A new benefit was proposed that would provide eligible caregivers up to 15 weeks of EI benefits to care for a critically ill or injured family member.

Employment Insurance – Extended Parental Benefits

Parents will not be able to elect to receive parental benefits over a period of up to 18 months at a benefit rate of 33% as compared to the current arrangement of 55%  over a period of up to 12 months.  Women will be able to begin claiming maternity benefits up to 12 weeks prior to their expected due date, up from 8 weeks.  These changes increase flexibility, but do not increase the total amount of parental benefits available to claimants.