2017 Federal Budget Highlights

MARCH 22, 2017

After a stressful month of worry it turns out…..  no change to capital gains tax!

Tax Planning Using Private Corporations

The budget highlighted a number of private company structures that will be reviewed by the government over the next few months. It did not specifically address any changes to these structures. The strategies mentioned include;

  • Dividend sprinkling shares – These are shares often held by low-income family members and are used to get dividends into their hands.
  • Holding a passive investment portfolio inside a private corporation – These are investment corporations.
  • Converting a private corporation’s regular income into capital gain – as only one-half of capital gains are included in income it results in reduced taxes where this can be accomplished compared to withdrawing money by way of salary or dividends

Closing Tax Loopholes

The budget proposes to make a few changes to strengthen the integrity of the tax system;

  • Prevent the avoidance/deferral of income tax through the use of offsetting derivative positions in straddle transactions. The government will expand the types of capital losses that will be denied if an unrealized capital gains position is also held.
  • Extend to RESPs and RDSPs anti-avoidance rules similar to the ones applicable in connection with TFSAs and RRSPs
  • Clarify the intended meaning of “factual control” under the Income Tax Act for the purpose of determining who has control of a corporation in order to prevent inappropriate access to supports such as the small business tax rate and the enhanced refundable 35-per-cent Scientific Research and Experimental Development Tax Credit for small businesses. The rule will now look at operational control of the corporation.

Increased CRA Activity

With additional funding from the government, there will be increased audit activity from CRA including;

  • Increased verification activity
  • Hiring additional auditors and specialists with a focus on the underground economy
  • Developing robust business intelligence infrastructure and risk assessment systems to target high-risk international tax and abusive tax avoidance cases
  • Improving the quality of investigative work that targets criminal tax evaders

Personal Tax

  • To simplify credit claims, the Caregiver Credit, Infirm Dependant Credit and Family Caregiver Credit will be replaced with a single credit – Canada Caregiver Credit starting in 2017/
  • Tuition Tax Credits will be extended starting in 2017 to expand the range of courses eligible for this credit to include occupational skills courses that are undertaken at a post-secondary institution in Canada, and to allow the full amount of bursaries received for such courses to qualify for the scholarship exemption (where conditions are otherwise met).
  • Starting in 2017, individuals who require medical intervention in order to conceive a child are eligible to claim the same expenses that would generally be eligible for individuals on account of medical infertility.
  • The Public Transit tax credit eliminated effective June 30, 2017.

Measures effecting Lawyers and Accountants

WIP elections for professionals are being eliminated so that income is taxed on an accrual basis.