Yesterday afternoon Bill Morneau, the Minister of Finance, presented the 2017-18 budget to the House of Commons. Many policy experts suggested that the Canadian government should refrain from any significant changes to the Canadian tax system given the potential changes to the US tax system under the Trump Administration.
It appears that the government followed this approach as the 2017-18 budget included only modest changes to the Canadian tax system.
As with the 2016 budget, many rumours circulated with respect to the changes the government would announce in this budget. Most common were suggestions that the government would change the capital gains inclusion rate from 50% to 66% or 75% and that they might eliminate or limit the principal residence exemption. To what will likely be a relief to taxpayers, the government made no changes to either the capital gains inclusion rate or the principal residence exemption.
The changes that will be most relevant to our clients are:
- The government will conduct a review and issue a policy proposal paper with respect to tax planning strategies being used by private corporations. The purpose of this paper is to identify tax advantages available to private corporations which may be considered unfair. The paper will focus on dividend sprinkling strategies, investment holding company structures and strategies designed to convert income to capital gains.
- In response to a recent court case, the meaning of de facto control will be expanded to ensure that both board and operational control issues are reviewed in determining control of a corporation.
- Designated professionals’ ability to elect to exclude the value of their work in progress from income will be eliminated for taxation years beginning after March 21, 2017. Transitional relief will be included in the proposed changes.
- The ability to claim reproductive technologies as a medical expense will be enhanced. This will be available in 2017 and later taxation years. An election to apply this provision to any of the previous 10 taxation years will also be included.
- Tuition tax credits will be expanded to a wider range of programs. This will include occupational skills courses that are offered at a university, college or other post-secondary institution, but that are not post-secondary level courses.
- The public transit tax credit will be eliminated effective July 1, 2017.
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