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 payroll, and an abundant amount of measures that would be of interest to employers, including the extension of maternity leave to 18 months, the electronic distribution of T4 information slips, and the elimination of various tax credits.
The following are measures affecting payroll and employment law in Federal Budget 2017:
1. Employment Insurance measure
- Employment Insurance (EI) rate: For 2018, the EI premiums are increasing to $1.68 per every $100 of insurable earnings (up from $1.63) – the maximum 5 cent annual increase allowed under the Employment Insurance Act.
- Expanding EI benefits:
- Caregiving benefits – Currently, EI benefits are available to eligible caregivers in cases where a loved one is gravely ill and at significant risk of death, or where a child is critically ill or injured. Budget 2017 proposes to provide $691.3 million over five years, starting in 2017–18, and $168.1 million per year thereafter, to create a new EI caregiving benefit of up to 15 weeks. The new benefit will cover a broader range of situations where individuals are providing care to an adult family member who requires significant support to recover from a critical illness or injury. Parents of critically ill children will continue to have access to up to 35 weeks of benefits, with additional flexibility to share these benefits with more family members.
- Parental benefits – Budget 2017 proposes to make EI parental benefits more flexible. Proposed changes will allow parents to choose to receive EI parental benefits over an extended period of up to 18 months at a lower benefit rate of 33 percent of average weekly earnings. EI parental benefits, however, will continue to be available at the existing benefit rate of 55 percent over a period of up to 12 months. Making EI parental benefits more flexible is expected to cost $152 million over five years, starting in 2017–18, and $27.5 million per year thereafter.
- Maternity benefits – Budget 2017 proposes to allow women to claim EI maternity benefits up to 12 weeks before their due date (expanded from the current standard of 8 weeks), if they choose. This additional flexibility is expected to cost $43.1 million over five years, starting in 2017–18, and $9.2 million per year thereafter.
Budget 2017 proposes to provide $12.1 million in 2017–18 to Employment and Social Development Canada (ESDC) to develop modern approaches to service delivery, beginning with EI. Through the modernization of benefit delivery, the Government will improve Canadians’ access to services and benefits, including speeding up application processes.
Budget 2017 also proposes to provide $132.4 million over four years, beginning in 2018–19, and $37.9 million per year thereafter, to allow unemployed Canadians to pursue self-funded training while receiving EI benefits. For unemployed workers receiving EI, this will mean that they can return to school to get the training they need to find a new job—without fear of losing the EI benefits they need to support themselves and their families.
2. Canada Labour Code measures
The Canada Labour Code (CLC) will be amended to align with EI budget measures to ensure that workers in federally regulated sectors have the job protection they need while they are receiving caregiver, parental or maternity benefits, by creating a new caregiver leave and expanding parental and maternity leaves.
Furthermore, Budget 2017 proposes targeted amendments to the CLC, which will:
- Strengthen and modernize compliance and enforcement provisions – Budget 2017 proposes to invest $13 million over five years, starting in 2017–18, and $2.5 million per year ongoing, to strengthen compliance and enforcement mechanisms. Of this amount, $3 million over five years will be reallocated from ESDCs existing resources.
- Give federally regulated employees the right to request more flexible work arrangements – Budget 2017 proposes to give federally regulated workers the right to request flexible work arrangements from their employer, such as flexible start and finish times and the ability to work from home. Proposed changes will also provide federally regulated workers with new unpaid leaves for family responsibilities, to participate in traditional Indigenous practices, and to seek care if they are victims of family violence. Changes will also make bereavement leave more flexible.
- Limit unpaid internships in federally regulated sectors – Budget 2017 proposes to eliminate unpaid internships in federally regulated sectors where the internships are not part of a formal educational program. These changes will also ensure that unpaid interns who are part of an educational program are entitled to labour standard protections, such as maximum hours of work, weekly days of rest and general holidays.
3. Income tax credits, benefits and allowances
Many Canadians receive benefits (such as a daily food allowance or transit fare) which are counted as taxable income. Yet certain tax measures allow some individuals to pay less than their fair share of taxes on such benefits. According to the Government, “[t]hese measures are unfair and they lack a strong policy rationale.”
In addition, tax relief for caregivers is provided in the income tax system through a number of non-refundable tax credits. These credits provide recognition of the impact of the non-discretionary, out-of-pocket expenses that caregivers incur on their ability to pay tax.
Also, the tuition tax credit is a 15 percent non-refundable tax credit in respect of eligible fees for tuition and licensing examinations paid by an individual enrolled at an eligible educational institution.
Budget 2017 proposes to eliminate certain benefits and allowances aiming to simplify the existing system of tax measures for caregivers and extend the eligibility criteria for the tuition tax credit by:
- Eliminating the deduction in respect of employee home relocation loans. Evidence suggests that this deduction disproportionately benefits the wealthy, and does little to help the middle class and those working hard to join it.
- Removing the tax exemptions for non-accountable expense allowances paid to members of provincial and territorial legislative assemblies and to certain municipal office-holders. This exemption is only available to certain provincial, territorial and municipal office holders, and provides an advantage that other Canadians do not enjoy.
- Providing new tax relief for caregivers: The existing system of tax relief for caregivers will be replace by three existing tax credits (i.e. Infirm Dependant Credit, Caregiver Credit, and Family Caregiver Tax Credit) with a single new Canada Caregiver Credit. This new, non-refundable credit will provide better support to those who need it the most: individuals caring for dependent relatives with infirmities (including persons with disabilities). The Canada Caregiver Credit will be more accessible and will extend tax relief to more caregivers, particularly those Canadians who provide care to dependent relatives who do not live with their caregivers. The new Canada Caregiver Credit will provide tax relief on an amount of:
- $6,883 (in 2017) in respect of expenses for care of dependent relatives with infirmities (including persons with disabilities)—parents, brothers and sisters, adult children, and other specific relatives.
- $2,150 (in 2017) in respect of expenses for care of a dependent spouse/common-law partner or minor child with an infirmity (including those with a disability).
The Canada Caregiver Credit will start to be reduced when the dependant’s net income is above $16,163 (in 2017). This income threshold, along with the amounts for the credit, will be indexed to inflation for taxation years after 2017. Families will be able to take advantage of the new Canada Caregiver Credit as soon as the 2017 tax year. This measure will provide $310 million in additional tax relief over the 2016–17 to 2021–22 period.
- Budget 2017 proposes to extend the eligibility criteria for the tuition tax credit to fees for an individual’s tuition paid to a university, college or other post-secondary institution in Canada for occupational skills courses that are not at the post-secondary level. To provide consistency with the rules for certified educational institutions, the tuition tax credit would be available in these circumstances only if the course is taken for the purpose of providing the individual with skills (or improving the individual’s skills) in an occupation and the individual has attained the age of 16 before the end of the year. This measure will apply in respect of eligible tuition fees for courses taken after 2016. Budget 2017 also proposes to extend eligibility as a “qualifying student” to individuals in the specific circumstances described above, who otherwise meet the conditions to be a “qualifying student”. Whether or not an individual is a “qualifying student” is relevant for the tax exemption for scholarship and bursary income. This measure will apply to the 2017 and subsequent taxation years.
4. Phasing out the Canada Savings Bonds and Canada Premium Bonds program
The sale of Canada Savings Bonds (CSBs) and Canada Premium Bonds (CPBs), as of November 2017, will be discontinued because they are no longer cost effective, according to the Government. It has been reassured to Canadians that any unmatured CSBs or CPBs are safe and guaranteed, and bonds will continue to be honoured until the time of redemption or maturity, whichever comes first.
5. Electronic distribution of T4 information slips
Budget 2017 proposes to allow employers to distribute T4 (Statement of Remuneration Paid) information slips electronically to current active employees without having to obtain express consent from those employees in advance. An employer will be required to have sufficient privacy safeguards in place before electronic T4s can be sent without express consent. These safeguards will be specified by the Minister of National Revenue and will include provisions requiring employers to provide paper T4s to employees who do not have confidential access to view or print their T4s. In addition, employers will be required to issue paper copies to employees who request them. This measure will apply in respect of T4s issued for the 2017 and subsequent taxation years.
6. Other budget measures that may be of interest to employers
I. Elimination of certain tax credits
The Government proposed to eliminate the following “inefficient” tax measures:
- Public Transit Tax Credit, effective in respect of transit use occurring after June 30, 2017. Available evidence suggests that this credit has been ineffective in encouraging the use of public transit and reducing greenhouse gas emissions.
- Goods and Services Tax/Harmonized Sales Tax (GST/HST) rebate payable to non-resident tourists and non-resident tour operators in respect of the accommodation portion of tour packages. The rebate is complex and costly to administer, and benefits only a narrow segment of the Canadian tourism industry. The Government will instead invest in enhanced tourism marketing.
- Surtax on domestic tobacco manufacturers, which now effectively applies to only a small share of tobacco products sold in Canada. Tobacco excise duties, which apply to all tobacco products sold in the Canadian market, will be adjusted to ensure that the peak level of revenues collected under the surtax in the early 2000s will be collected under the excise duty framework.
- The 25-per-cent Investment Tax Credit for Child Care Spaces given that it has had very low take-up and has not been effective in increasing the number of child care spaces provided by employers. Budget 2017 also proposes to invest an additional $7 billion over 10 years, starting in 2018–19, to support and create more high-quality, affordable child care spaces across the country.
- The additional deduction available to corporations that donate medicine to eligible registered charities, given high compliance costs for charities and very low take-up. Corporations will continue to be able to deduct the fair market value of donated medicine.
- The First-Time Donor’s Super Credit will be allowed to expire in 2017 as planned, due to its low take-up, small average amounts donated, and the overall generosity of existing tax assistance for charitable donations.
II. Caregiver recognition benefit
Budget 2017 proposes to amend legislation and invest $187.3 million over six years, starting in 2016–17, and $9.5 million per year ongoing, to create the Caregiver Recognition Benefit for modern-day veterans. This benefit would replace the existing Family Caregiver Relief Benefit and would provide a more generous non-taxable $1,000 monthly benefit payable directly to caregivers to better recognize and honour the vital role they play.
III. Business income of professionals
Budget 2017 proposes to eliminate 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.
IV. Disability Tax Credit Certification
Currently, nurse practitioners are not allowed to certify application forms for individuals with impairments who are applying for the Disability Tax Credit. Budget 2017 proposes to add nurse practitioners to the list of medical practitioners that can certify the impacts of impairments for Disability Tax Credit applicants. The measure will apply to Disability Tax Credit certifications made on or after Budget Day.
V. New Education and Training Benefit
Budget 2017 proposes to amend legislation to create a new Education and Training Benefit. This benefit would provide more money for veterans to go to college, university or a technical school after they complete their service, through an investment of $133.9 million over six years, starting in 2016–17, and $10.3 million per year ongoing. The new program would begin in April 2018 for veterans honourably released on or after April 1, 2006. Veterans with 6 years of eligible service would be entitled to up to $40,000 of benefits, while veterans with 12 years of eligible service would be entitled to up to $80,000 of benefits.
VI. Medical Expense Tax Credit
Budget 2017 proposes to clarify the application of the Medical Expense Tax Credit so that individuals who require medical intervention to conceive a child are eligible to claim the same expenses that would generally be eligible for individuals on account of medical infertility. This measure will apply to the 2017 and subsequent taxation years.
VII. Improving the Temporary Foreign Worker Program and the International Mobility Program
Budget 2017 proposes to invest $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). This investment will build on Canada’s new Global Skills Strategy, which will help to facilitate the temporary entry of high-skilled global talent. See “Global Skills Strategy” below. Budget 2017 also proposes to eliminate the Labour Market Impact Assessment (LMIA) processing fee for families seeking to hire foreign caregivers to provide care for persons with high medical needs, and for middle class families with less than $150,000 in annual income seeking to hire foreign caregivers to provide child care. The cost of this measure is $24.5 million over five years, starting in 2017–18, and $4.9 million per year thereafter. Also, in December 2016, the Government announced plans to improve the TFWP. In particular, changes will: (a) Introduce stronger recruitment requirements for low-wage employers, where appropriate, so that Canadian workers that are traditionally underrepresented in the labour market have better access to available job opportunities; (b) Eliminate the four-year cumulative duration rule; (c) Extend the exemption to the cap on the number of low-wage temporary foreign workers employed by firms in seasonal industries for 2017; (d) Include further work on developing pathways to permanent residency for temporary foreign workers.
- Global Skills Strategy: 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.
- 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.
VIII. Modernizing business fees
Per the Government, “[b]usinesses should pay their fair share for the services the Government provides.” The Government is proposing to make changes to the legislative framework governing fee setting for government services. The proposed changes will streamline the fee setting process while ensuring continued accountability and oversight. In addition, the Government proposes to implement an automatic inflation escalator to allow existing business fees to keep pace with costs. Consideration will also be given to modernizing the framework for recovering costs for certain northern pipeline projects, and, if appropriate, amendments would be brought forward.
IX. Fossil fuel subsidies
Canada has made a commitment with its partners in the G20 and Asia-Pacific Economic Cooperation to phase out inefficient fossil fuel subsidies. In recent years, Canada has phased out several corporate income tax preferences for oil, gas, and coal mining. To make further progress, Budget 2017 proposes to:
- Modify the tax treatment of successful oil and gas exploratory drilling. The success rates for exploratory drilling have increased substantially since the 1990s and, in a majority of cases, discovery wells now lead to production, which makes the well an asset of enduring value. Consistent with the usual treatment of enduring assets, expenses associated with oil and gas discovery wells will be treated as Canadian development expenses, which are deducted gradually over time, rather than as immediately deductible Canadian exploration expenses, unless and until they are deemed unsuccessful.
- Remove the tax preference that allows small oil and gas companies to reclassify Canadian development expenses as immediately deductible Canadian exploration expenses when they are renounced to flow-through share investors. This will ensure that these development expenses, which create an asset of enduring value, are deducted gradually over time.
X. Amend the definition of a taxi business under the Excise Tax Act
Budget 2017 proposes to (a) amend the definition of a taxi business under the Excise Tax Act to level the playing field and ensure that ride-sharing businesses are subject to the same GST/HST rules as taxis; (b) Eliminate the income tax exemption for insurers of farming and fishing property, which was introduced in 1954 to encourage the provision of insurance in rural districts.
XI. Labour Market Transfer Agreements and Labour Market Development Agreements
The Government intends to undertake a significant reform of the Labour Market Transfer Agreements, in collaboration with the provinces and territories.
Budget 2017 proposes to invest an additional $1.8 billion over six years, starting in 2017–18, to expand the Labour Market Development Agreements. “For Canadians looking for work, this means more opportunities to upgrade their skills, gain experience or get help to start their own business. It also means more support, like employment counselling, to help them plan their career” (page 53 of the Budget). In addition, the Government proposes to amend the Employment Insurance Act to broaden worker eligibility for programs and services under the Labour Market Development Agreements, allowing even more Canadians, especially underrepresented groups, to access Employment Insurance-funded skills training and employment supports.
Also, Budget 2017 proposes to invest an additional $900 million over six years, starting in 2017–18, for new Workforce Development Agreements. The Workforce Development Agreements, which will consolidate the existing Canada Job Fund Agreements, the Labour Market Agreements for Persons with Disabilities and the Targeted Initiative for Older Workers, will make transfers to the provinces and territories simpler and more flexible.
XII. Adult learners
Budget 2016 included measures to help make post-secondary education more affordable, including for adult learners looking to learn new skills. Such measures included a new flat-rate contribution model to determine eligibility under the Canada Student Loans Program. This new model comes into effect for the 2017–18 academic year and replaces the old system, which focused on student income and financial assets. The new model will benefit adult learners, many of whom may work while studying or own a home or other assets. In addition, the threshold for eligibility for Canada Student Loans for part-time students will be increased so that even more part-time students can qualify for assistance. In addition, to help adults who want to return to school after spending years in the workforce, the Government intends to introduce a three-year pilot project to test new approaches to make it easier for adult learners to qualify for Canada Student Loans and Grants. Budget 2017 proposes to provide $287.2 million over three years, starting in 2018–19, for the pilot project. Over the next year, the Government will work to finalize program design so that the pilot project is in place starting in the 2018–19 academic year.
XIII. Youth employment
Last year, the Government announced new investments in the Youth Employment Strategy and the Canada Summer Jobs program, which help to create short-term job opportunities for students between the ages of 15 and 30. Budget 2017 proposes to provide an additional $395.5 million over three years, starting in 2017–18, for the Youth Employment Strategy. Budget 2016 announced the creation of an Expert Panel on Youth Employment to examine the barriers that young Canadians (especially vulnerable youth) face in finding and keeping jobs. The Panel consulted with young people, employers, community organizations and service providers in communities across Canada. In its interim report, released in December 2016, the Panel described the feedback it had received to date. Employers expressed a positive view of young people, but were not always sure how to navigate hiring programs, or how to best use the talents and skills that young people possess. The Panel is expected to deliver its final report in the spring of 2017.
XIV. Closing tax loopholes
Budget 2017 proposes several actions to strengthen the integrity of the tax system, including: (a) Extend 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; (b) 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 percent Scientific Research and Experimental Development Tax Credit for small businesses.