On Wednesday, March 22, 2017, the Federal government announced the 2017-2018 budget. Certainly you have heard some of the highlights in the media. As a valued client of the Wealth Stewards group, we wish to summarize the most important changes that may affect your family and your business.
Bill Morneau, Federal Minister of Finance, titled the budget “Building a Strong Middle Class”. He previously stated,
“Canadians are talented, skilled and creative people. Our plan will give them the tools and support they need to make their mark in the economy of tomorrow, while ensuring that the success we create together is shared by the middle class, and those working hard to join it”
Overall the stated themes of the budget are:
- Skills and Innovation
- Tax Fairness
- A Strong Canada
The 2017-2018 budget proposed another deficit of $28.5 billion, up from $27.8 billion, with no plan to balance the budget going forward. Projected future deficits instead were centered on maintaining a debt-to-GDP ratio of 31%, a drastic change from last year when the government projected the 2020 deficit to be $14.2 billion. The 2018 forecast includes $3 billion of a new risk contingency, and $1.4 billion in additional revenue, offset by $1.1 billion in increased program expenses.
Nothing in the budget is going to materially move the needle for global markets, Canada’s credit rating, nor economists views of short term and long term growth. This was a placeholder budget. The risk contingency is to account for three key pieces of information not yet available.
1) What will the U.S. tax system be?
2) What will U.S. trade policies be?
3) What was the impact of the announced spending measures from last year?
As I stated in my review of the 2016 Federal budget, which becomes more apparent now, we remain to expect further tax increases in the coming years.
Review of the Tax System:
Despite much discussion of economists and tax professionals in the media the past few weeks, there were no significant changes to the Income Tax Act. Notably, there were no changes to:
- The tax rules governing group health and dental benefits
- The tax treatment of corporate-owned life insurance
- The inclusion rate for capital gains
- The taxation of dividends
- The tax rules governing stock options
- The rules relating to the small business deduction
- Pension income splitting and the pension income deduction
The government stated it is continuing to review tax planning strategies of high income earners and private corporations that it views inappropriately reduce personal taxes. The finance minister made it very clear in his speech that the government remains committed to eliminate tax planning strategies that solely benefit “wealthy” Canadians.
Finance stated that it will be releasing a paper in the next few months regarding these issues, along with policies to respond to their stance.
The government reaffirmed its’ stance to institute a federal carbon tax of $10/tonne in 2018, increasing to $50/tonne by 2022, for provinces that do not adopt their own carbon tax system.
- Over $500 million will be given to the CRA over the next 5 years to increase resources for detecting tax avoidance
- $11 billion over the next 11 years towards a national housing strategy
- $7 billion will be spent in the next decade to assist Canadian families by increasing the number of daycare centres, lengthening parental leave, and allowing maternal leave to begin 12 weeks before the expected due date
- Female entrepreneurs received additional funding and the tax treatment of fertility procedures and treatment was made more favourable
- Nearly $3 billion before 2023 is devoted to work with the provinces and territories to improve support to unemployed Canadians through better training
- $400 million over 3 years will fund a venture capital initiative through the Business Development Bank to increase access to capital for entrepreneurs
- Spending review of three (to be named later) departments to eliminate waste and inefficiencies
- Taxes on tobacco and alcohol will be adjusted every April 1st, and be linked to the Consumer Price Index. This will begin in 2018, after a 2017 increase of 2% has been mandated within the budget
- The Canada Savings Bond program will be eliminated
- No changes to personal tax rates. Tax brackets will continue to be indexed to inflation.
- Tuition tax credit – will expand to include occupational skills courses not at the post-secondary level
- Disability tax credit – nurse practitioners will be added to the list of medical professionals who can certify the disability tax credit form
- Public transit tax credit - has been eliminated
- First time charitable donation credit – is eliminated after 2017
- Ride sharing service drivers (i.e. Uber) – must register and report GST/HST effective July 1, 2017, regardless of the amount of income earned
- Small Business Tax – the small business deduction will remain at 10.5%
- Further changes to accelerated CCA (depreciation expense) for clean energy equipment – accelerated CCA rates proposed in 2016 now apply to geothermal equipment used to generate heat or electricity
- The government’s intention to review tax and compensation arrangements for small business corporations regarding income splitting with dividends and capital gains, holding passive (non-operating) investments, and converting salary or dividends to capital gains
- Other matters – related to cross border tax issues, transfer pricing and international tax treaties
This is a high level summary of the budget announcements that may have an effect on your family. As always, if you wish to discuss any of the 2017 Federal Budget matters in more detail, do not hesitate to call us at (905) 891-6052 or email email@example.com.