On March 22, 2016, the new Liberal Government’s first federal budget, Growing the Middle Class (“Budget 2016”), was tabled. Some of the measures announced in the Budget include a new Canada Child Benefit, elimination of income splitting for couples with children under 18 and the children’s fitness and arts tax credits. The Budget also proposes a package of reforms for the Canada Student Loans Program while simplifying the application process for student financial assistance. Other proposals include that the small business tax rate remain at 10.5 percent, investment of more than $120 billion in infrastructure over 10 years and improvements and expansion to transit systems over the next three years.
Many of the measures have implications for employers and payroll professionals and a summary can be found below:
1. Personal income tax measures
Personal income tax bracket and rates
On December 9, 2015, the federal government tabled Bill C-2 (An Act to amend the Income Tax Act), which already includes proposals to reduce the personal income tax rate from 22 percent to 20.5 percent, on the personal income tax bracket applicable to income from $44,702 to $89,401, and to introduce a new 33 percent personal income tax rate on income in excess of $200,000.
In addition to the above proposed tax changes, Budget 2016 proposes further amendments to the Income Tax Act to reflect the new top marginal income tax rate for individuals that will:
- provide a 33 percent charitable donation tax credit (on donations above $200) to trusts that are subject to the 33 percent rate on all of their taxable income;
- apply the new 33 percent top rate on excess employee profit sharing plan contributions;
- increase from 28 per cent to 33 percent the tax rate on personal services business income earned by corporations;
- amend the definition of “relevant tax factor” in the foreign affiliate rules to reduce the relevant tax factor from the current 2.2 to 1.9;
- amend the capital gains refund mechanism for mutual fund trusts to reflect the new 33 percent top rate in the formulas that are used in computing refundable tax;
- increase the Part XII.2 tax rate on the distributed income of certain trusts from 36 per cent to 40 percent; and
- amend the recovery tax rule for qualified disability trusts to refer to the new 33 percent top rate.
Northern residents deduction
Individuals who live in prescribed areas in northern Canada for at least six consecutive months beginning or ending in a taxation year may claim the northern residents deduction in computing their taxable income for that year. These include both a residency deduction and a travel benefits deduction. Budget 2016 proposes to increase the maximum residency deduction. The maximum for those in the Northern Zone is proposed to be increased from $8.25 to $11 per day where multiple household members claim the deduction, and from $16.50 to $22 per day where no other member of the household claims the residency deduction for the 2016 taxation year. The proposed maximums for those in the Intermediate Zone would be increased to $6.50 per day and $11 per day, respectively.
Teacher and early childhood educator school supply tax credit
Budget 2016 proposes to introduce a teacher and early childhood educator school supply tax credit. This measure will allow an employee who is an eligible educator to claim a 15 percent refundable tax credit based on an amount of up to $1,000 in expenditures for eligible supplies made by the employee in a taxation year. This measure will apply to supplies acquired on or after January 1, 2016.
Education and textbook tax credits
Budget 2016 proposes to eliminate the education and textbook tax credits, but not the 15 percent non-refundable tax credit on eligible fees for tuition and eligible examination fees paid to certain educational institutions. This measure will apply effective January 1, 2017. Unused education and textbook credit amounts carried forward from years prior to 2017 will remain available to be claimed in 2017 and subsequent years.
Labour-Sponsored Venture Corporations Tax Credit
At the federal level, prior to 2015, individuals acquiring shares of a labour-sponsored venture capital corporation (“LSVCC”) qualified for a 15% federal tax credit for investments of up to $5,000 each year. The federal LSVCC tax credit was reduced to 10% for the 2015 taxation year and to 5% for the 2016 taxation year. The federal LSVCC credit is presently scheduled to be eliminated for the 2017 and subsequent taxation years. At the provincial level, a number of provinces offer similar tax credits (referred to by different names, depending on the province), at varying investment limits and tax credit rates. Budget 2016 proposes to restore the federal LSVCC tax credit to 15% for share purchases of provincially registered LSVCCs prescribed under the ITA for 2016 and subsequent taxation years. Newly registered LSVCCs under existing provincial legislation would be eligible for prescription if the provincial legislation is currently prescribed for purposes of the federal LSVCC tax credit. New provincial regimes would be eligible for prescription under the ITA, provided that the enabling provincial legislation is patterned on currently prescribed provincial legislation. Note, however, that the prohibition on new federal LSVCC registrations and the current transition rules for federally registered LSVCCs would be maintained.
2. Employment insurance (EI) measures
The government intends to:
- Invest $21 million over three years, starting in 2016-17, to promote compliance with EI program rules.
- Make compassionate care benefits easier to access, more flexible and more inclusive for those who provide care for seriously ill family members and providing more flexibility in parental leave benefits to better accommodate unique family and work situations. These objectives will be advanced over the course of the Government’s mandate.
- Eliminating the higher EI eligibility requirements that make it difficult for those who are new entrants, or are re-entering the labour market, to access benefits. Budget 2016 proposes to amend the rules to eliminate the higher EI eligibility requirements that restrict access for new entrants and re-entrants to the labour market. With these changes, new entrants and re-entrants will face the same eligibility requirements as other claimants in the region where they live. Moreover, to begin claiming EI, Canadians will need to accumulate 420 to 700 hours of work in the 52 weeks prior to their claim, depending on the unemployment rate in the region where they live. That’s a significant drop from the current minimum of 910 hours. This measure is proposed to take effect in July 2016.
- To help reduce the period of time during which a claimant is without income, Budget 2016 proposes to make legislative changes to reduce the EI waiting period from two weeks to one week effective January 1, 2017.
- Extend the current EI Working While on Claim pilot project until August 2018. The Working While on Claim Pilot Project, with Budget 2016’s proposed changes, will allow claimants to keep 50 cents of every dollar earned while on claim, up to a maximum of 90 percent of their weekly insurable earnings.
- In 2012, changes were made to the EI program to specify the type of jobs that unemployed workers are expected to search for and accept. Budget 2016 proposes to reverse those changes that strictly define the job search responsibilities of unemployed workers. The government will also ensure that there are fair and flexible supports to assist EI claimants train for and find new employment. Moreover, requirements for claimants to accept lower pay and longer commuting times the longer they rely on EI will be eliminated. Claimants will still need to conduct job search activities and accept suitable employment while on EI, however.
- Legislative changes to extend the duration of EI regular benefits by 5 weeks, up to a maximum of 50 weeks of benefits, for all eligible claimants in the 12 EI economic regions that have experienced the sharpest and most severe increases in unemployment. Extended benefits will be available for one year starting in July 2016, with the measure being applied retroactively to all eligible claims as of January 4, 2015. Also proposed are legislative changes to offer up to an additional 20 weeks of EI regular benefits to long-tenured workers in the same 12 EI economic regions, up to a maximum of 70 weeks of benefits. Extended benefits for long-tenured workers will be available for one year starting in July 2016, with the measure being applied retroactively to all eligible claims as of January 4, 2015.
- Extend the maximum duration of Work-sharing agreements from 38 weeks to 76 weeks across Canada.
- Reduce employment insurance premiums for employees and employers to $1.61 per every $100 earned, down from $1.88 (Conservatives had pledged in the $1.40 range).
3. CPP and OAS measures
- CPP enhancements: In December 2015, the government began discussions on enhancing the Canada Pension Plan with provinces and territories. The budget renews a commitment to enhance the Canada Pension Plan (CPP). The government will expand this process, launching consultations to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan.
- Old Age Security (OAS) and GIS benefits: Increasing the Guaranteed Income Supplement (GIS) for single seniors. They will invest $3.4 billion dollars over five years to lift low-income single seniors out of poverty with a significant increase to GIS top-up benefits. Increase in the GIS top-up benefit by up to$947 annually for single seniors starting in July 2016, which will support those seniors who rely almost exclusively on Old Age Security (OAS) and GIS benefits and may therefore be at risk of experiencing financial difficulties.
- Restoring eligibility ages of the Old Age Security program: Budget 2016 proposes to cancel the provisions in the Old Age Security Act that increase the age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period. The eligibility age for OAS and GIS benefits will be restored to 65.
4. Investing in skills, training, and employee retention
- The government will conduct broad-based consultations with provinces, territories and stakeholders in 2016-17 to identify ways to improve these agreements and guide future investments to strengthen labour market programming.
- The government proposes to provide $85.4 million over five years, starting in 2016-17, to develop a new framework to support union-based apprenticeship training.
- The government will explore ways to ensure that federally-regulated employees are better able to manage the demands of paid work and their personal and family responsibilities outside of work.
5. Creating jobs and prosperity for the middle class
- Investing more than $120 billion in infrastructure over 10 years, to better meet the needs of Canadians and better position Canada’s economy for the future.
- Phase 1 of the Government’s long-term infrastructure plan provides $11.9 billion over five years to immediately invest in the infrastructure Canadians need to modernize and rehabilitate public transit, water and wastewater systems, provide affordable housing, and protect infrastructure systems from the effects of climate change.
- Phase 2 goals: a more modern, cleaner economy; a more inclusive society; and an economy better positioned to capitalize on the potential of global trade.
6. Canadians with disabilities
Chapter 5 of the budget – An Inclusive and Fair Canada discusses the government’s commitment to eliminate systemic barriers and deliver equality of opportunity to all Canadians living with disabilities. The government will consult with provinces, territories, municipalities and stakeholders to introduce a Canadians with Disabilities Act. This budget allocates $2 million over two years, starting in 2016–17, to support the full participation of Canadians with disabilities in this process.
To view other budget measures, go to HRinfodesk.
Implementing budget measures
Notices of Ways and Means of Motions have been tabled in the House of Commons to explain and implement the above budget measures. These notices can be found here.
Draft legislation to implement certain of the above budget measures will also be tabled in the House of Commons shortly.
Other measures will require further studies and public consultations before they can be implemented through legislation or regulations.