RSM provides tax and middle market insight on 2019 Federal Budget
Incentives targeting innovation are welcomed, but tax measures to address global competitiveness fall short of middle market companies’ expectations
RSM Canada, the leading provider of audit, tax and consulting services focused on the middle market, issued the following perspective for Canada’s middle market businesses following today’s much-anticipated Budget 2019.
“Canadian middle market companies were hoping that Budget 2019 would have meaningful measures to support growth and global competitiveness,” said Maria Severino, national tax leader, RSM Canada. “Although Finance included some positive, targeted tax measures to support Canadian businesses, it deferred introducing any broad-based changes that could enhance competitiveness and reduce uncertainty.”
Some key takeaways from Budget 2019 are:
A focus on innovation and equipping Canadians
- Middle market companies performing Scientific Research and Experimental Development (SRED) in Canada will welcome the elimination of the income test that would otherwise restrict access to the 35 per cent refundable credit. The changes to the SRED program will allow more middle market businesses to access tax credits for innovation activities.
- The new Canada Training Credit, combined with the EI Training Support benefit, will help strengthen workforce skills and provide a deeper pool of talent to Canadian companies.
- Budget 2019 reaffirms Finance intention to allow a full write-off of costs for manufacturing, processing and specified clean energy equipment, as well as accelerated depreciation for most other capital asset acquisitions.
Falling short on global competitiveness
- Budget 2019 was silent on introducing broad-based tax measures expected by middle market companies to relieve global economic pressures, such as United States tax reform and implications of USMCA.
- Budget 2019 did not introduce measures that would lower Canada's personal and corporate tax rates, simplify the complexity of Canada's tax legislation, or reduce the cost of compliance and administration for businesses.
Uncertainty for middle market companies and their stakeholders
- Finance reaffirmed its continued focus on integrity, efficiency and fairness of Canada’s tax system. Budget 2019 announced increased funding and enforcement action to address non-compliance, particularly for the digital economy, cryptocurrency, taxation of non-residents and high-net-worth individuals and their closely held companies.
- Finance announced its intention to continue to reach out to businesses throughout 2019 to develop new proposals to better accommodate intergenerational transfers of businesses, while protecting the integrity and fairness of the tax system.
- Finance intends to limit the benefit of the current employee stock option tax regime and move towards the United States tax treatment on stock options for employees of large, long established companies, including a $200,000 annual cap on employee stock option grants based on the fair value of the underlying shares at the time of grant. Start-ups and emerging Canadian businesses will be protected from this new regime. This measure would be applied prospectively and will not affect employee stock options granted prior to the announcement of any proposed changes. However, the government has delayed any further action on this until summer 2019.
Middle market companies will be looking for further details and clarity. It remains to be seen what the implications of any future proposals will be to middle market companies and their stakeholders. In the interim, until details on any new measures are released by Finance, middle market companies are faced with uncertainty as they plan their affairs.
RSM’s purpose is to deliver the power of being understood to our clients, colleagues and communities through world-class audit, tax and consulting services focused on middle market businesses. The clients we serve are the engine of global commerce and economic growth, and we are focused on developing leading professionals and services to meet their evolving needs in today’s ever-changing business environment.
RSM Canada LLP provides public accounting services and is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms with more than 41,000 people in 116 countries. RSM Alberta LLP is a limited liability partnership and independent legal entity that provides public accounting services. RSM Canada Consulting LP provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. For more information visit rsmcanada.com, like us on Facebook, follow us on Twitter and/or connect with us on LinkedIn.