2017 Federal Budget

March 23, 2017

The 2017 Federal Budget was tabled on March 22, and although it contained a few changes to tax legislation, it is more noteworthy for what was missing. First, we will provide a brief summary of the changes proposed in the budget:

  • Introducing legislation which expands the definition of “factual control”
    • A recent case had resulted in factual control being narrowed to the ability to elect or control the board of directors or its decisions, but legislation will be introduced to make it clear that when assessing whether a person has factual control of a corporation, all relevant circumstances should be considered (not just ability to elect/control the board)
    • This change is specifically targeted at Canadian-controlled private corporations (http://www.lwlaw.com/what-is-a-ccpc/) to “prevent inappropriate access to supports such as the small business tax rate and the enhanced refundable 35% Scientific Research and Experimental Development Tax Credit for small businesses.”
  • Changing the tax treatment of derivative instruments and straddle transactions.
  • Restricting certain investments in an RESP or RDSP, so that the qualified investments for these plans correspond to qualified investments for RRSP, RRIF and TFSA’
  • Eliminating the public transit tax credit as of July 1, 2017.
  • Extending tuition tax credit to certain occupational skills courses.
  • Requiring providers of ride-sharing services to register and charge GST/HST.

The most surprising part of the budget was what was missing.  Despite fears that the budget would include an increase in the tax rate for capital gains, there were no changes made in this area (there were rumours that the inclusion rate for capital gains would be increased from the existing rate of 50%).

The government indicated that they would be reviewing tax planning strategies involving private corporations “that inappropriately reduce personal taxes of high-income earners”.  The results of the government’s review, along with proposed changes to the tax legislation, will be released at a later date – signaling that the taxation of small businesses may be changing, possibly significantly, in the near future.

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