On March 22, 2017, Canada’s Finance Minister Bill Morneau tabled the Liberal Government’s Federal Budget 2017, Building a Strong Middle Class, which includes various measures affecting businesses.
The federal budget 2017 is modest and is focused on skills training, innovation and how Canada will promote sustainable growth. The government is forecasting a deficit of $28.5-billion, up from $27.8-billion. New revenue measures are expected to generate a total of $4.7 billion over the next five years. They include: modest tax increases on tobacco and alcohol, closing some corporate tax loopholes and eliminating some tax deductions.
Although widely rumored, federal Budget 2017 does not contain any changes to income tax rates or the capital gains inclusion rate.
The government continued with its plan of closing down perceived tax loopholes and inequalities in the tax system. Some of the measures include:
- Extending to Registered Education Savings Plans and Registered Disability Savings Plans anti-avoidance rules similar to the ones applicable in connection with Tax-Free Savings Accounts and Registered Retirement Savings Plans; and,
- Clarifying 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 percent Scientific Research and Experimental Development Tax Credit for small businesses.
- Eliminating the use of billed-basis accounting for income tax purposes by a limited group of professionals (e.g. accountants, lawyers, medical doctors and other designated professionals) to avoid giving these professionals a deferral of tax that is not available to other taxpayers.
- Allowing corporations to elect to use a mark-to-market method for derivatives held on account of income (not on derivatives held on account of capital). For those who make the election, gains and losses on derivatives will be recognized each taxation year, thus matching the recognition of gains and losses for book and tax purposes. Caution should be exercised, however, as once made, ministerial approval will be required to revoke the election. An additional measure was proposed to eliminate the use of what is referred to as “straddle transactions.” Such transactions were typically used to defer income, whereby, when two offsetting derivatives were entered into, the loss derivative was triggered in one year and the gain derivative in the year following. While there are a number of exceptions, this new anti-avoidance provision will prevent a mismatch in the timing of the recognition of the gains and losses on such instruments.
- Investing an additional $523.9-million over five years to prevent tax evasion and improve tax compliance. As a result, the CRA is expected to hire more auditors, increase the number of tax audits and improve its internal risk assessments. This will undoubtedly increase the number of tax audits that businesses and their shareholders undergo and overall tax compliance costs.
- Reviewing the use of tax planning strategies involving private corporations that, in the view of the Government, inappropriately reduce personal taxes of high-income earners, including using private corporations to “sprinkle” income (via both dividends and capital gains) to family members who are subject to lower personal tax rates (or who may not be taxable at all).
In addition, as announced in the 2016 Fall Economic Statement, the Government will launch a Global Skills Strategy to facilitate faster access to top global talent for companies doing business in Canada that are committing to bring new skills to Canada and create more Canadian jobs. The Global Skills Strategy will set an ambitious two-week standard for processing visas and work permits for global talent. The following will be introduced under the Global Skills Strategy. New Global Talent Stream is building on funding announced in the 2016 Fall Economic Statement, Budget 2017 proposes to provide an additional $7.8 million over two years, starting in 2017–18, to implement a new Global Talent Stream under the Temporary Foreign Worker Program, including:
- New work permit exemption for short-duration work term: The short-duration work permit exemption will apply for work terms of fewer than 30 days in a year (or for brief academic stays) and will be used for short-term, inter-company work exchanges, study exchanges or the entrance of temporary expertise.
- Express Entry system: Budget 2017 proposes to amend the Immigration and Refugee Protection Act to ensure that the Express Entry system is responsive to the needs of the Canadian labour market, and that the candidates most likely to succeed in Canada are selected. Budget 2017 also proposes to amend the IRPA allow the Government to set relevant fees in a timely manner.
The government of Canada has stated that it will provide $279.8 million over five years, starting in 2017–18, and $49.8 million per year thereafter, to support the continued delivery of the Temporary Foreign Worker Program (TFWP) and the International Mobility Program (IMP). These two programs facilitate the entry to Canada of foreign workers to Canada.
The federal 2017-18 Budget also contains measures that will have a significant impact on employers, most immediately those in the federal sector. For a more in-depth commentary on payroll and employment law measures among other things, read the blog post on First Reference Talks.