Canada

Budget 2017: Our analysis

TAX ALERT  | 

The 2017 Federal Budget came and went without much fanfare.  Despite the areas of concern identified prior to the budget release there were no major tax changes revealed in Budget 2017.

Here is our summary of the Budget announcements:

Tax planning strategies under scrutiny

Budget 2017 did not include any of the anticipated changes, including revamped small business deduction eligibility, new stock option rules and an increase to the capital gains inclusion rate which was welcome news across the country. With tax fairness front and centre in the Government’s radar, Budget 2017 made reference to a review of corporate tax-planning strategies that it views as preferential to high-income earners. These include the build-up of a passive investment portfolio inside a private company, converting income into capital gains, and the sprinkling of income among family members in a lower tax bracket. We will be watching these areas closely in the coming months.

Resource deductions revamped

Certain oil and gas exploration corporations will no longer be able to treat the first $1 million of Canadian Development Expenses (CDE) as Canadian Exploration Expenses (CEE) when issuing flow-through shares. These changes will be effective for expenditures after 2018, and transitional provisions will be in place for 2016 agreements.

Drilling or completing a discovery well expenditure will now be deductible at 30 percent per year instead of 100 percent, on a declining balance basis.  Continued CEE treatment will be allowed where a well is abandoned.

EI flexibility

Employment Insurance (EI) benefits will become more accessible.  There will be an extension of the duration parental benefits can be collected – up to 18 months as opposed to the current range of 12 months – at a lower rate of 33 per cent. Similarly, pregnant women may be able to access maternity benefits a month earlier than the current system. Lastly, the Government has set aside an additional $12.1-million for EI, Canada Pension Plan and Old Age Security benefits programs.

Work in progress changes

Current rules allow certain professionals such as accountants, lawyers, veterinarians, medical doctors, chiropractors, and dentists to defer income until work in progress (WIP) is billed rather than when it takes place. Under a new measure brought forward in Budget 2017, the WIP deferral would be eliminated for taxation years beginning on or after March 22, 2017.

A transitional proposal will allow these taxpayers a deduction equal to 50 per cent of unbilled WIP in year one and the balance in the following taxation year. If these rules affect you, be mindful when undertaking a transaction during a transitional year; this may increase the WIP income inclusion in a year-end tax scenario. 

Factual control updates

In light of proposed changes to factual control outlined in Budget 2017, corporate structures created to avoid association through de facto control should be review. The Government intends to broaden the factors used to determine whether factual control of a corporation exists. This measure aims to prevent taxpayers from accessing certain tax preferences such as multiple small business deductions.

Miscellaneous credits and changes

While corporate and personal tax rates remained unchanged in Budget 2017, here are some other changes:

  • Cancellation of the 15 percent Public Transit Tax Credit
  • Requirement for ride-sharing businesses such as Uber to charge GST/HST, which will likely trigger and increase their prices
  • Two percent increase in alcohol excise duties.

In conclusion

While Budget 2017 may not have introduced many significant tax changes, you are encouraged to contact your tax professional to make sure your current business and personal finance tax plans are on track.

AUTHORS


Subscribe to our newsletters

Subscribe


HOW CAN WE HELP YOU?

Contact us by phone +1.855.420.8473 or submit your questions, comments or proposal requests


Recent Tax Alerts

US tax reform: Business and investing

In a white paper for the Canadian Tax Foundation, RSM highlights how U.S. tax reform affects U.S. and international businesses.

  • October 22, 2018

Updates to Quebec tax credits & incentives to offset US tariff impact

Recent tax changes by the government of Quebec include enhancements to the investment tax for manufacturing and processing equipment.

  • October 22, 2018

Plan now for 2019 refundable dividend tax on hand transition

Per the Federal Budget 2018, new rules will apply to the Refundable Dividend Tax On Hand (RDTOH) regime starting January 1, 2019.

  • October 02, 2018

Don’t miss your trust's 21st anniversary

The 21-year rule on trusts may result in unintended tax consequences, if trustees and beneficiaries fail to plan for it in a timely manner.

  • September 10, 2018

Case by case: Tax deductions in merger and acquisition transactions

Recent court rulings provide tax treatment frameworks for transaction costs, but their application requires careful consideration.

  • August 08, 2018