The Federal Government’s 2018 Budget includes tens of billions of dollars in new or increased spending over the next six years. So how does the new Federal Budget impact you?
Millards Chartered Professional Accountants has released their annual Federal Budget Commentary in response to the third budget tabled by Finance Minister Bill Morneau.
Joshua Laporte, CPA, CA and Associate at Millards says the commentary offers a quick overview of the key points and their relevance to Canadian businesses and individuals.
“The new budget addresses a number of topics from gender equality, parental leave, research funding and small business tax reform. This budget introduces changes that will impact many of our clients and we encourage them to download the Millards Federal Budget Commentary to review the changes that could impact them personally or corporately.”
Laporte says the 2018 budget reflects what the Federal Government believes is a positive economic activity and outlook.
“The budget touts Canada’s strong economic growth over the past two years, including real GDP growth of 3.2 percent since the second quarter of 2016, an unemployment rate of 5.9 percent, and significant improvements in average weekly earnings, consumer confidence, and household consumption.”
In addition, federal revenues increased by more than 11 percent in 2017, largely from personal and corporate income taxes.
The government plans to further grow government revenues by increasing economic participation among women, visible minority Canadians and persons with disabilities, as well as substantial long-term investments in science and technology.
“We’re recommending that Millards clients and all interested parties should download the Federal Budget Commentary to find out how this new budget will touch them in their personal or business dealings.”
Highlights from the 10-page Millards Federal Budget Commentary
Passive Investment Income Earned by Private Corporations
The Budget proposes to introduce measures to reduce perceived tax advantages where a private corporation earns passive income. This proposal will apply to taxation years that commence after 2018 with no grandfathering of passive income earned on existing investments.
Income Sprinkling Measures
The Budget confirms that Finance will proceed with the implementation of the December 13, 2017, draft proposals that address income sprinkling involving private corporations.
The Tax on Split Income (TOSI) regime that existed prior to 2018 (commonly referred to as the “kiddie tax” rules), impacted only Canadian resident Minors. The December 13, 2017, draft legislative proposals represent a major broadening of the old TOSI rules and will become effective as of January 1, 2018. The proposed TOSI rules can apply to any Canadian resident, regardless of age.
Artificial Losses Using Equity-Based Financial Arrangements
The Government is concerned that certain taxpayers are still engaging in abusive arrangements that are intended to circumvent the dividend rental arrangement rules and result in an artificial tax loss on the arrangement. Consequently, the Budget proposes an amendment which broadens the dividend rental arrangement rules and securities lending arrangement rules in order to prevent taxpayers from claiming a deduction for inter-corporate dividends received in situations where substantially all of the opportunity for gain or profit or risk of loss in respect of a Canadian share rests with certain persons other than the taxpayer.
PERSONAL INCOME TAX MEASURES
The Budget did not propose a number of changes that were the subject of speculation prior to the Budget. The capital gains inclusion rate will not increase and remains at 50 percent. In addition, proposals in respect of “surplus stripping” first introduced in July 2017 and then abandoned have not been reintroduced. Personal income tax rates will not increase under the Budget.
Canada Workers Benefit (CWB)
The Budget enhances the existing Working Income Tax Benefit and renames it as the Canada Workers Benefit, effective for 2019 and subsequent years. The CWB will be 26 percent of “earned income” in excess of $3,000 to a maximum of $1,355 for single taxpayers without dependents and $2,335 for families (couples and single parents).
Foreign-born Status Indians who legally reside in Canada but are neither Canadian citizens nor permanent residents are eligible for the Canada Child Benefit (CCB), provided all other eligibility requirements are met. The Budget proposes to make them retroactively eligible for the Canada Child Tax Benefit, the National Child Benefit supplement and the Universal Child Care Benefit, the predecessors to the current CCB.
Employment Insurance Parental Sharing Benefit
The Budget proposes a new five-week Employment Insurance Parental Sharing Benefit, effective June 2019. This benefit will be available as a top-up in situations where both parents agree to share parental leave. It will be available to eligible two-parent families, including same sex-couples and adoptive parents. This new benefit is intended to provide greater flexibility, particularly for mothers, to return to work sooner.
Apprenticeship Incentive Grant for Women
Current legislation provides for the Apprenticeship Completion Grant which is a one-time taxable cash grant of $2,000 to a registered apprentice who has completed their apprenticeship training and obtains their journeyperson certification. The Budget proposes a new Apprenticeship Incentive Grant for Women. Under this program, women in male-dominated Red Seal trades will be able to receive $3,000 per year for each of their first two years of training.
Trusts Reporting Requirements
The Budget proposes extensive new reporting requirements for most family trusts, effective for returns required to be filed for 2021 and subsequent taxation years. These requirements could impose an obligation to file a return where none currently exists, such as where the trust earned no income in the year.
The Budget proposes a new excise duty framework for cannabis products to be introduced as part of the Excise Act, 2001. The duty will generally apply to all products available for legal purchase including fresh and dried cannabis, cannabis oils and seeds and seedlings for home cultivation. Cannabis cultivators and manufacturers (cannabis licensees) will be required to obtain a cannabis licence from the CRA and remit the applicable excise duty.