1. Refundable Corporate Taxes
Under Canada’s corporate tax system, a portion of the tax that a corporation pays on investment income is refunded to the corporation when it distributes the income to its shareholders as a dividend. To eliminate perceived abuse by corporations that earn both business and investment income, the refundable tax system will be modified to ensure that the ability to claim such a refund will be limited to distributions of investment income. This measure will be effective for corporate tax years beginning after 2018.
2. Advancing Canada’s Gender Equality Goals
The current Liberal government has been focusing on gender equity since taking office. The recurring theme of the 2018 Budget is advancing gender equality. Measures proposed include:
- 1.4 billion dollars in new financing available to women entrepreneurs through the BDC (Business Development Bank of Canada) over the next three fiscal years;
- Funding and loan products from the EDC (Export Development Canada) and Farm Credit;
- Changes to parental leave to allow women to return to work earlier and encourage men to stay home with their children for a period of time after birth. These measures are modeled after the Quebec measures that have been in place for a number of years;
- Grants to apprenticeship and pre-apprenticeship programs to encourage underrepresented groups to start careers in more traditionally male-dominated trades.
3. Canada Workers Benefit
The Working Income Tax Benefit (a refundable tax credit to supplement the earnings of low-income workers and provide work incentives for low-income earners) will be renamed the Canada Workers Benefit and will become more generous and accessible. Effective in 2019, the maximum benefit to be received will increase to $1,355 for single individuals without dependants and $2,335 for families. The disability supplement will be increased by $160 to $700.
The income level at which the benefit is phased out will be increased and access to the benefit will be improved. Rather than having to apply for the benefit on their tax returns, the eligibility will be automatically determined by the Canada Revenue Agency.
4. Cannabis Taxation
Cannabis products should become legal by mid-2018. The budget proposes a new federal excise duty framework which should apply to all products available for legal distribution, which will include fresh and dried cannabis, cannabis oils, and seeds and seedlings for home cultivation. Cannabis cultivators and manufacturers will be required to obtain a cannabis license from the CRA and remit excise duty, where applicable. The framework will come into effect when cannabis for non-medical purposes becomes available for legal retail sale.
5. International Tax Avoidance
Within the context of our existing international tax treaties and in an effort to combat international tax avoidance, new measures will be put into place to allow for sharing of information internationally for the investigation, prosecution and suppression of tax and non-tax related criminal offences.
New rules will be put into place to prevent non-Canadian shareholders of Canadian corporations from stripping “surplus” from such companies on a tax-free basis.
Audits of Canadian foreign affiliates by Canadian tax authorities are often quite complex. To give the Canadian tax authorities time to more thoroughly investigate transactions with these affiliates, two changes are proposed. First, effective for tax years beginning on or after February 27, 2018, the time period for reassessing a taxpayer’s income from a foreign affiliate will be extended by three years. Second, effective for tax years beginning after 2019, the time period for filing certain information returns will be shortened from the current deadline of 15 months after the year-end to six months after the year-end.
Do not hesitate to contact our team for any specific questions relating to measures from the budget that impact you or your business.