2016 Federal Budget Report | FBC, Canada's Farm & Small Business Tax Specialist

2016 Federal Budget Report

2016 Federal Budget Report

Finance Minister Bill Morneau delivered the government’s 2016 federal budget.

The budget expects a deficit of $5.4 billion for fiscal 2015-2016 and forecasts a deficit of $29.4 billion for 2016-2017.

Highlights

  • Deficit of $5.4 billion for 2015-16
  • Projected deficit of $29.4 billion for 2016-17
  • Projected deficit of $29 billion and $22.8 billion for the following 2 years

The major tax changes contained in the budget include the elimination of certain tax credits, such as:

  • Income splitting for couples with children
  • Child Fitness Tax Credit
  • Children’s Art Credit
  • Education Tax Credit
  • Textbook Tax Credit
  • Canada Child Tax Benefit

There were no changes introduced to the capital gains inclusion rate or the stock options deduction.

The budget defers further reductions on the small business tax rate of 10.5% on the first $500,000 of business income.

The budget precludes the multiplication of the small business deduction in certain partnership and corporate structures.

The budget repeals the eligible capital property regime, which will be replaced with a new capital cost allowance class.

The use of life insurance policy to distribute amounts tax free to shareholders have also been tightened up.

The budget announced $11.4 billion over five years to modernize public transit infrastructure, invest in green infrastructure and social infrastructure including affordable housing. The budget also notes that the government will invest $2 billion in a low carbon economy fund.

Key Budget Statistics  (In Billions $)

 

2014-2015
Revised

2015-2016
Projected

2016-2017
Projected

2017-2018
Projected

Budgetary Revenue

282.3

291.2

287.8

302.0

Budgetary Expenses

253.8

270.9

291.4

304.6

 

28.5

20.3

(3.6)

(2.6)

Public Debt

26.6

25.7

25.7

26.4

Budgetary Balance

1.9

(5.4)

(29.3)

(29.0)

Federal Debt

612.3

619.3

648.7

677.7

Breaking Down the Budget!

Key Economic Statistics (In Billions $)

 

2016-17

Revenues:

 

  1. Personal Income taxes

$143.9

  1. Corporate Income taxes

37.9

  1. GST

33.5

  1. Other income tax

6.3

  1. Custom import duties

5.0

  1. EI premium revenues

22.4

  1. Other excise taxes/duties

11.1

  1. Other revenues

27.7

Total revenues

$287.8

Expenses:

 

  1. Elderly benefits

$48.4

  1. EI

21.1

  1. Children’s benefits

21.9

  1. Federal transfers (Health & Other Social programs)

68.6

  1. Direct program expenses

131.3

  1. Other (public debt charges)

25.7

Total expenses

$317.0

Deficit  ($287.8 – 317.0)

$    (29.2)

Personal Tax Measures

Taxes Rate Decrease & Increases in 2016!

There are no individual income tax rate or tax bracket changes in this budget.

On 7 December 2015, the government announced that effective 1 January 2016 the second federal income tax bracket will be reduced from 22.0% to 20.5% and a new 33.0% tax bracket will apply for taxable income in excess of $200,000.

The brackets will continue to be indexed for inflation.

Personal Marginal Tax Rates

Tax Brackets

2015
Tax Rate

2016
Tax Rate

$0 – $45,282

15.0%

15.0%

$45,282 – $90,563

22.0%

20.5%

$90,563 – $140,388

26.0%

26.0%

$140,388 – 200,000

29.0%

29.0%

> $200,000

29.0%

33.0%

Personal tax credits for 2016 will be indexed by 1.013%. The maximum tax credits amounts and actual Federal tax credits for 2015 and 2016 are set out below.

Federal Non-Refundable Tax Credits

 

2015

2016

Maximum Amount

Federal Tax Credit

Maximum Amount

Federal Tax Credit

Basic Personal Amount

$11,327

$1,699

11,474

1,721

Spousal Amount

11,327

1,699

11,474

1,721

Eligible dependent amount

11,327

1,699

11,474

1,721

Age amount

7,033

1,055

7,125

1,069

Infirm dependent amount

6,700

1,005

6,788

1,018

CPP Contributions

2,480

372

2,544

382

EI Contributions

931

140

955

143

Canada Employment Amount

1,146

172

1,161

174

Pension income amount

2,000

300

2,000

300

Disability amount

7,899

1,185

8,001

1,200

Disability supplement

4,608

691

4,667

700

Tuition and education amounts

Variable

Variable

Variable

Variable

Adoption expenses

15,255

2,288

15,453

2,318

Medical expenses

Variable

Variable

Variable

Variable

Medical expenses (other dependents)

Variable

Variable

Variable

Variable

Caregiver amount

4,608

691

4,667

700

Interest on student loans

Variable

Variable

Variable

Variable

Donations & Gifts
-first $200

- over $200


200
75% of income


30
Variable


200
75% of income


30
Variable

In general, credits are multiplied by 15% to arrive at the deduction from Federal Tax. In the case of donations and gifts over $200, the credit is 29% or 33% depending on whether $200,000 income threshold is reached

Family Tax Cut ... Cut!

Budget 2016 proposed to eliminate the income splitting tax credit for couples with at least one child under the age of 18 for the 2016 and subsequent taxation years.

A non-refundable income splitting tax credit was available for couples with at least one child under the age of 18.

The credit allowed a higher-income spouse or common-law partner to notionally transfer up to $50,000 of taxable income to their spouse or common-law partner for the purpose of reducing the couple’s total income tax liability by up to $2,000.

Canada Child Benefit

To simplify and consolidate existing child benefits while ensuring that help is better targeted to those who need it most, Budget 2016 proposed to replace the Canada child tax benefit (CCTB) and the universal child care benefit (UCCB) with a new Canada Child Benefit.

The Canada Child Benefit will provide a maximum benefit of $6,400 per child under the age of 6 and $5,400 per child aged 6 through 17.

On the portion of adjusted family net income between $30,000 and $65,000, the benefit will be phased out at a rate of 7% for a one-child family, 13.5% for a two-child family, 19% for a three-child family and 23% for larger families.

Where adjusted family net income exceeds $65,000, remaining benefits will be phased out at rates of 3.2% for a one-child family, 5.7% for a two-child family, 8% for a three-child family and 9.5% for larger families, on the portion of income above $65,000.

Entitlement to the Canada Child Benefit for the July 2016 to June 2017 benefit year will be based on adjusted family net income for the 2015 taxation year. 

Canada Child Benefit payments under this measure will start in July 2016. The UCCB and CCTB will be eliminated for months after June 2016.

Canada Child Benefit Phase out Rates & Adjusted Family Income Thresholds

 

Phase-Out Rates (%)

 

$30,000 - $65,000

Over $65,000

1 child

7.0%

3.2%

2 children

13.5%

5.7%

3 children

19.0%

8.0%

4 or more children

23.0%

9.5%

Disability Tax Credit

To recognize the additional costs of caring for a child with a severe disability, Budget 2016 proposed to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit.

The phase-out of this additional amount will be made to generally align with the Canada Child Benefit.

Specifically, it will be phased out at a rate of 3.2% for families with one eligible child and 5.7% for families with more than one eligible child, on adjusted family net income in excess of $65,000, effective July 1, 2016.

This additional amount will be included in the Canada Child Benefit payments made to eligible families.

Retroactive Payments

Budget 2016 proposed to allow a taxpayer to request a retroactive payment of the Canada Child Benefit, CCTB or UCCB in respect of a month on or before the day that is 10 years after the beginning of that month, effective for requests made after June 2016.

Children’s Special Allowance [Child Protection Agencies]

The children’s special allowance is generally paid to provincial and territorial child protection agencies to assist with the costs of caring for a child under the care of a child protection agency.

The current allowance is equivalent to the maximum benefit under the existing CCTB and UCCB system.

To ensure consistent treatment for children under the care of a child protection agency, Budget 2016 proposed to increase the children’s special allowance to the same level as is proposed under the Canada Child Benefit, effective July 1, 2016.

Northern Residence Deduction

Budget 2016 proposed to increase the maximum residency deduction that each member of a household may claim from $8.25 to $11 per day and, where no other member of the household claims the residency deduction, to increase the maximum residency deduction from $16.50 to $22 per day for the 2016 taxation year.

Residents of the Intermediate Zone will be entitled to deduct half of these increased amounts.

Individuals who live in prescribed areas in northern Canada for at least 6 consecutive months beginning or ending in a taxation year may claim the northern resident’s deductions in computing their taxable income for that year.

These include both a residency deduction and a deduction for certain travel benefits.

The amounts that a taxpayer may deduct under the northern residents deductions depend on whether the taxpayer resides in the Northern Zone or the Intermediate Zone.

Residents of the Northern Zone are eligible to deduct the full amounts, while residents of the Intermediate Zone may deduct half of the amounts.

Labour-Sponsored Venture Capital Corporations Tax Credit  

To support provinces that use labour-sponsored venture capital corporation (LSVCC) programs to facilitate access to venture capital for small and medium-sized businesses, Budget 2016 proposes to restore the federal LSVCC tax credit to 15% for share purchases of provincially registered LSVCCs prescribed under the Income Tax Act for the 2016 and subsequent taxation years.

A LSVCC is a form of mutual fund corporation, sponsored by an eligible labour body. LSVCCs are mandated, under their enabling legislation, to provide venture capital to small and medium-sized businesses.

Prior to 2015, individuals acquiring LSVCC shares qualified for a 15% federal tax credit for investments of up to $5,000 each year.

The federal LSVCC tax credit was reduced to 10% for the 2015 taxation year and to 5% for the 2016 taxation year.

The credit is scheduled to be eliminated for the 2017 and subsequent taxation years.

Teacher and Early Childhood Educator School Supply Tax Credit

Budget 2016 proposed to introduce a teacher and early childhood educator school supply tax credit.

This measure will allow an employee who is an eligible educator to claim a 15% refundable tax credit based on an amount of up to $1,000 in expenditures made by the employee in a taxation year for eligible supplies.

Teachers and early childhood educators often incur at their own expense the cost of supplies for the purpose of teaching or otherwise enhancing students’ learning in the classroom or learning environment.

For the cost of supplies to qualify for the credit, employers will be required to certify that the supplies were purchased for the purpose of teaching or otherwise enhancing learning in a classroom or learning environment.

Individuals making claims will be required to retain their receipts for verification purposes.

Ontario Electricity Support Program

To ensure that income-tested benefits are not reduced as a result of Ontario Electricity Support Program (OESP) amounts, Budget 2016 proposed to exempt from income amounts received under the OESP.

The OESP is a program of the Government of Ontario that, effective January 1, 2016, provides assistance to low-income households in Ontario for the cost of electricity.

The OESP reduces the cost of household electricity by providing a monthly credit on a recipient’s electricity bill. The credit depends on household income and how many people live in the household.

This type of assistance received in a year is generally required to be included in income. While an offsetting deduction is provided so that the assistance is effectively non-taxable, amounts received may affect income-tested federal or provincial/territorial benefits, such as child benefits.

This measure will apply to the 2016 and subsequent taxation years.

Mineral Exploration Tax Credit for Flow-Through Share Investors

Budget 2016 proposed to extend eligibility for the mineral exploration tax credit for one year, to flow-through share agreements entered into on or before March 31, 2017.

Under the existing “look-back” rule, funds raised in one calendar year with the benefit of the credit can be spent on eligible exploration up to the end of the following calendar year.

For example, funds raised with the credit during the first 3 months of 2017 can support eligible exploration until the end of 2018.

Flow-through shares allow resource companies to renounce or “flow through” tax expenses associated with their Canadian exploration activities to investors, who can deduct the expenses in calculating their own taxable income.

The mineral exploration tax credit provides an additional income tax benefit for individuals who invest in mining flow-through shares, which augments the tax benefits associated with the deductions that are flowed through.

Education and Textbook Tax Credit Eliminated

Budget 2016 proposed to eliminate the education and textbook tax credits. This measure does not eliminate the tuition tax credit.

Changes will be made to ensure that other income tax provisions—such as the tax exemption for scholarship, fellowship and bursary income—that currently rely on eligibility for the education tax credit or use terms defined for the purpose of the education tax credit will be unaffected by its elimination.

The education tax credit provides a 15% non-refundable tax credit of $400 per month of full-time enrolment in a qualifying educational program and $120 per month of part-time enrolment in a specified educational program at a designated educational institution.

The textbook tax credit provides a 15% non-refundable tax credit of $65 per month of full-time enrolment in a qualifying educational program and $20 per month of part-time enrolment in a specified educational program at a designated educational institution.

This measure will apply effective January 1, 2017.

Unused education and textbook credit amounts carried forward from years prior to 2017 will remain available to be claimed in 2017 and subsequent years.

Children’s Fitness and Arts Tax Credits

Budget 2016 proposes to phase out the children’s fitness and arts tax credits.

The 2016 maximum eligible amounts will reduce to $500 from $1,000 for the children’s fitness tax credit (which will remain refundable for 2016) and to $250 from $500 for the children’s arts tax credit.

The supplemental amounts for children eligible for the disability tax credit will remain at $500 for 2016. Both credits will be eliminated for the 2017 and subsequent taxation years.

The children’s fitness tax credit currently provides a 15% refundable tax credit on up to $1,000 of eligible fitness expenses for children under 16 years of age at the beginning of the taxation year.

For children who are eligible for the disability tax credit and have at least $100 of eligible expenses, the credit amount is increased by $500 and is extended to children under 18 years of age.

The children’s arts tax credit provides a 15% non-refundable tax credit on up to $500 in eligible fees for programs of artistic, cultural, recreational and developmental activity for children under 16 years of age. As with the children’s fitness tax credit, the age limit of the children’s arts tax credit is extended to children under 18 years of age and an additional $500 credit amount is available in respect of children eligible for the disability tax credit.

Donation of Public Company Shares

The budget stated that the government will not proceed with the 2015 federal budget measure that proposed to provide an exemption from capital gains tax for certain dispositions of private corporation shares or real estate where cash proceeds from the disposition were to be donated to a registered charity or other qualified recipient within 30 days.

Top Marginal Income Tax Rate – Consequential Amendments

On December 7, 2015, the Government announced a reduction of the second personal income tax rate to 20.5% from 22% and the introduction of a 33% personal income tax rate on individual taxable income in excess of $200,000, effective for the 2016 and subsequent taxation years.

Budget 2016 proposes further amendments to reflect the new top marginal income tax rate for individuals that will:

  • Provide a 33% charitable donation tax credit (on donations above $200) to trusts that are subject to the 33% rate on all of their taxable income
  • Apply the new 33% top rate on excess employee profit sharing plan contributions
  • Increase from 28% to 33% the tax rate on personal services business income earned by corporations
  • Amend the definition of “relevant tax factor” in the foreign affiliate rules to reduce the relevant tax factor from the current 2.2 to 1.9
  • Amend the capital gains refund mechanism for mutual fund trusts to reflect the new 33% top rate in the formulas that are used in computing refundable tax
  • Increase the Part XII.2 tax rate on the distributed income of certain trusts from 36% to 40%
  • Amend the recovery tax rule for qualified disability trusts to refer to the new 33% top rate

These measures will apply to the 2016 and later taxation years.

The charitable donation tax credit measure will be limited to donations made after the 2015 taxation year.

The measure will also extend the proposed 33% charitable donation tax credit in Bill C-2 (which currently applies to donations made after 2015) to be available for donations made by a graduated rate estate during a taxation year of the estate that straddles 2015 and 2016.

In the case of the rate increase on personal services business income earned by corporations in taxation years that straddle 2015 and 2016, the rate increase will be prorated according to the number of days in the taxation year that are after 2015.

Guaranteed Income Supplement

The budget proposed to increase the Guaranteed Income Supplement top-up benefit by up to $947 annually for the most vulnerable single seniors starting in July 2016

Enhancing the Canada Pension Plan

In December 2015, the government began discussions on enhancing the Canada Pension Plan with provinces and territories.

The government will expand this process, launching consultations to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan.

Restoring Eligibility Ages of the Old Age Security program

The eligibility age for OAS and GIS benefits will be restored to 65.

Budget 2016 proposed to cancel the provisions in the Old Age Security Act that increase the age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period.

In addition the budget ensured couples who receive Guaranteed Income Supplement and Allowance benefits and have to live apart for reasons beyond their control (such as a requirement for long-term care) to receive higher benefits based on their individual incomes.

Improving Employment Insurance

Immediate action is being taken to improve Employment Insurance (EI) by changing the eligibility rules for new entrants and re-entrants, and temporarily enhancing benefits in certain regions.

Starting in 2017, the waiting period for benefits will be reduced from two weeks to one week.

Business Tax Measures

No New Corporate Taxes Rate Increases for 2016!

Budget 2016 proposed that the small business tax rate remain at 10.5% after 2016.

Previously announced reductions to the corporate income tax rate applicable on small-business income of a Canadian-controlled private corporation (CCPC) have been removed.

No further changes to federal corporate income tax rate were announced in the budget.

For 2016, the federal marginal tax rates remain as follows:

Federal Corporate income Tax Rates

 

2015

2016 +

General Corporate Rate

15.0%

15.0%

Small Business Rate

11.0%

10.5%

CCPC investment income rate

34.67%

34.67%

Small Business Deduction

Budget 2016 proposed that the small business tax rate remain at 10.5% after 2016.

In order to preserve the integration of the personal and corporate income tax systems, Budget 2016 also proposed to maintain the current gross-up factor and dividend tax credit (DTC) rate applicable to non-eligible dividends (generally, dividends distributed from corporate income taxed at the small business tax rate).

The small business deduction reduces to 10.5% the federal corporate income tax rate applying to the first $500,000 per year of qualifying active business income of a Canadian-controlled private corporation (CCPC).

There is a requirement to allocate the annual eligible income limit of $500,000 (referred to as the “business limit”) among associated corporations.

Where a business is carried on through a partnership, the members of the partnership share one $500,000 limit in respect of that business. 

Access to the small business deduction is phased out on a straight-line basis for a CCPC and its associated corporations having between $10 million and $15 million of taxable capital employed in Canada. 

Gradual reductions in the small business tax rate are currently legislated for 2017, 2018 and 2019.

The gross-up factor applicable to non-eligible dividends will be maintained at 17% and the corresponding DTC rate at 21/29 of the gross-up amount.

Expressed as a percentage of the grossed-up amount of a non-eligible dividend, the effective rate of the DTC in respect of such a dividend will remain at 10.5% after 2016, in line with the small business tax rate.

Anti-Avoidance: Multiplying the Small Business Deduction

Budget 2016 proposed changes to address concerns about partnership and corporate structures that multiply access to the small business deduction. 

In general, where a Canadian controlled private corporation (CCPC) is a member of a partnership, the CCPC is entitled to its pro-rata share of the $500,000 small business deduction based on its share of active business income allocated to it.

Structures have been implemented where an individual owns a partnership interest.

A CCPC is incorporated to provide services or property under contract to the partnership. A small business deduction is claimed in respect of the income earned thus providing an opportunity to double up on the small business deduction. 

The budget proposed to eliminate this opportunity by deeming the CCPC to be a member of the partnership and its income is deemed to be partnership active business income.

The specified partnership income of a deemed member of a partnership is initially deemed to be nil, however, an actual member of a partnership who does not deal at arm’s length with a deemed member of a partnership will be able to assign its actual specified partnership income to the deemed partner.

The budget proposed a similar change where a CCPC provides services or property to a private corporation, where the CCPC, one of its shareholders, or a person who does not deal at arm’s length with such a shareholder has a direct or indirect interest in the in the private corporation. 

In this situation, the income earned by the CCPC will be ineligible for the small business deduction. The private corporation may assign a portion of its small business deduction to the CCPC.

Small Business Deduction — Active versus Investment Business

The 2015 budget announced a review of the circumstances in which income from a business, the principal purpose of which to earn income from property should qualify as active business income and therefore be eligible for the Small Business Deduction. 

No modifications are proposed to these rules at this time.

Eligible Capital Property (ECP)

The budget proposed to repeal the eligible capital property (ECP) regime, and replace it with a new capital cost allowance (CCA) class.

New rules will provide for a transfer of taxpayers’ existing cumulative eligible capital (CEC) pools to the new CCA class.

The budget stated that this proposal is not intended to affect the application of the GST/HST in this area. 

Under this proposal, a new class of depreciable property for CCA purposes will be introduced.

Expenditures that are currently added to CEC (e.g., cost of goodwill, customer lists and licenses, franchise rights and farm quotas of indefinite duration) (at a 75% inclusion rate) will be included in the new CCA class at a 100% inclusion rate.

Because of this increased expenditure recognition, the new class will have a 5% annual depreciation rate (instead of 7% of 75% of eligible capital expenditures).

To retain the simplification objective, the existing CCA rules will generally apply, including rules relating to recapture, capital gains and depreciation (e.g., the “half-year rule”).

There will be a separate new Class for each CEC pool of a taxpayer.

Special rules will apply in respect of goodwill and in respect of expenditures and receipts that do not relate to a specific property of the business and that would be eligible capital expenditures or eligible capital receipts under the ECP regime.

Such expenditures and receipts will be accounted for by adjusting the capital cost of the goodwill of the business.

Every business will be considered to have goodwill associated with it, even if there had not been an expenditure to acquire goodwill.

An expenditure that did not relate to property will increase the capital cost of the goodwill of the business and, consequently, the balance of the new CCA class.

Transitional Rules

Cumulative eligible capital (CEC) pool balances will be calculated and transferred to the new CCA class as of January 1, 2017.

The opening balance of the new CCA class will be equal to the balance at that time of the existing CEC pool. 

For the first 10 years, the depreciation rate for the new CCA class will be 7% for expenditures incurred before January 1, 2017.

Budget 2016 also proposes the following special rules to simplify the transition for small businesses: 

  • To allow small initial balances to be eliminated quickly, a taxpayer will be permitted to deduct as capital cost allowance, in respect of expenditures incurred before 2017, the greater of $500 per year and the amount otherwise deductible for that year.
    This additional allowance will be provided for taxation years that end prior to 2027.
  • In the past, many businesses have had relatively small CEC balances, which were solely due to their incorporation expenses.
    To reduce compliance burdens in respect of these expenses, a separate business deduction will be provided for these expenditures, such that the first $3,000 of these expenditures will be treated as a current expense rather than being added to the new CCA class.
    This will allow approximately 80% of newly incorporated businesses to deduct the full amount of the incorporation expenses in their initial year.

This measure, including the transitional rules, will apply as of January 1, 2017.

Life Insurance Proceeds

The budget notes that life insurance proceeds received as a result of the death of an individual insured under a life insurance policy are generally not subject to income tax. 

In particular, a corporation may add the amount of the policy benefit it receives to its capital dividend account (CDA) and then pay tax-free capital dividends to shareholders. 

In the case of a partnership, the adjusted cost base (ACB) of a partner’s interest in a partnership is increased to the extent of the partner’s share of a policy benefit received by the partnership.

A partner can generally withdraw funds from a partnership tax-free to the extent of the partner’s ACB.

The budget proposed amendments to ensure that the CDA rules for private corporations and the ACB rules for partnership interests apply as intended. 

In particular, the proposal will provide that the “insurance benefit limit” (i.e., the portion of the policy benefit received by the corporation or partnership that is in excess of the policyholder’s ACB of the policy) applies regardless of whether the corporation or partnership that receives the policy benefit is a policyholder of the policy.  

The budget noted that taxpayers have structured their affairs so that the “insurance benefit limit” may not apply as intended, resulting in an artificial increase in a corporation’s CDA balance, or increase in the ACB of a partner’s interest in a partnership. 

As such, the government is challenging a number of these structures and is also proposing this new budget measure.

This measure will apply to policy benefits received as a result of a death that occurs on or after March 22, 2016.

Transfer of Life insurance Policies

The budget also noted similar concerns with the transfer of life insurance policies.

The budget proposed amendments to ensure that amounts are not inappropriately received tax free by a policyholder as a result of a disposition of an interest in a life insurance policy. 

This amendment will apply to dispositions that occur on or after March 22, 2016.

The budget will also amend the capital dividend account (CDA) rules and the adjusted cost base (ACB) rules for partnership interests, where an interest in a life insurance policy was disposed of before March 22, 2016 for consideration in excess of the proceeds of the disposition determined under the “policy transfer rule.”

The policy transfer rule is defined in the budget as a special rule that deems the policyholder’s proceeds of disposition, and the acquiring person’s cost, of the interest in a life insurance policy to be the amount that the policyholder would be entitled to receive if the policy were surrendered.

Also, where an interest in a life insurance policy was disposed of before March 22, 2016 under the “policy transfer rule” to a corporation or a partnership as a contribution of capital, any increase in the paid-up capital of a class of shares of the corporation, and the ACB of the shares or of an interest in the partnership, that may otherwise have been permitted will be limited to the amount of the proceeds of the disposition. 

This measure will apply to policies under which policy benefits are received as a result of deaths that occur on or after March 22, 2016.

Accelerated CCA for Clean Energy Equipment

The budget proposes to expand Classes 43.1 and 43.2 to include electric vehicle charging stations based on whether they meet certain power thresholds.

Class 43.1 will include those charging stations set up to supply more than 10 kilowatts but less than 90 kilowatts of continuous power.

Class 43.2 will include electric vehicle charging stations set up to supply at least 90 kilowatts of continuous power. 

Classes 43.1 and 43.2 provide accelerated capital cost allowance (CCA) rates (30% and 50% respectively on a declining balance basis) for investments in specified clean energy generation and conservation equipment.

The assets in these classes include eligible equipment that generates or conserves energy by using a renewable energy source, using a fuel from waste or making efficient use of fossil fuels. 

Electric vehicle charging stations — Electric vehicle charging stations are generally included in Class 8 which provides a CCA rate of 20% on a declining balance basis.

Eligible equipment will include certain equipment downstream of an electricity meter owned by an electric utility and used for billing purposes or owned by the taxpayer to measure electricity generated by the taxpayer.

To be eligible, more than 75% of the annual electricity consumed in connection with the equipment must be used to charge electric vehicles.

Eligible equipment includes charging stations, transformers, distribution and control panels, circuit breakers, conduits, wiring and related electrical energy storage equipment.

These measures will apply to property acquired for use on or after March 22, 2016 that has not been used or acquired for use before March 22, 2016. 

Electrical energy storage property — Eligibility of electrical energy storage equipment for inclusion in Classes 43.1 and 43.2 currently depends on the technology being used to generate electricity.

Storage equipment which does not qualify for inclusion in these classes is generally included in Class 8.

The budget proposed to clarify and expand the range of electrical energy storage property that is eligible for Class 43.1 or Class 43.2 to include a broad range of short and long-term storage equipment, on the basis that it is ancillary to eligible generation equipment.

If the storage equipment is part of an electricity generation system that is eligible for Class 43.2, it will be included in Class 43.2.

If the storage equipment is part of an electricity generation system that is eligible for Class 43.1, it will be included in Class 43.1.

The budget also proposed to allow stand-alone electrical energy storage property to be included in Class 43.1 provided that the round trip efficiency of the equipment is greater than 50%.

A fuel cell which uses hydrogen produced by electrolysis equipment will remain eligible for Class 43.2 regardless of its round trip efficiency provided all or substantially all of the electricity used to power the electrolysis process is generated from specified renewable sources.

The eligible generation sources will be expanded to include electricity generated by the other renewable energy sources currently included in Class 43.2—geothermal, waves, tides and the kinetic energy of flowing water. 

Eligible electrical energy storage property will include equipment such as:

  • Batteries
  • Flywheels
  • Compressed air energy storage
  • Ancillary equipment and structures

It will not include pumped hydroelectric storage, hydroelectric dams and reservoirs or a fuel cell system where the hydrogen is produced via steam reformation of methane.

Certain uses of electrical energy storage equipment will also be excluded from eligibility:

  • Back up electricity generation
  • Motive uses (e.g., in battery electric vehicles or fuel cell electric vehicles)
  • Mobile uses (e.g., consumer batteries)

These measures will apply to property acquired for use on or after March 22, 2016 that has not been used or acquired for use before March 22, 2016.

Indirect Tax and Customs Changes

Medical and Assistive Devices

The budget proposed to add insulin pens, insulin pen needles and intermittent urinary catheters to the list of zero-rated medical devices zero-rated under the Goods and Services Tax/Harmonized Sales Tax (GST/HST) rules.  

As a result, suppliers will not charge purchasers GST/HST on these medical devices and are entitled to claim input tax credits to recover the GST/HST paid on inputs related to these supplies.

For insulin pens and insulin pen needles, this measure will apply to supplies made after March 22, 2016 and to supplies made on or before this date, unless the supplier charged, collected or remitted GST/HST in respect of the supply.  

For intermittent urinary catheters, this measure will apply to supplies made after March 22, 2016.

Cosmetic Procedures

The budget proposes to clarify that the GST/HST generally applies to supplies of purely cosmetic procedures provided by all suppliers, including registered charities (e.g., liposuction, hair replacement procedures, hair removal, botulinum toxin injections, teeth whitening).

To be exempt, a cosmetic procedure must be required for medical or reconstructive purposes (e.g., as surgery to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease).

Cosmetic procedures paid for by a provincial health insurance plan will continue to be exempt.

This measure will apply to supplies made after March 22, 2016.

Donations to Charities

The budget proposed a rule that provides that, when a charity supplies property or services in exchange for a donation, and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST. 

This rule will apply to supplies that are not already exempt from GST/HST, and intended to ensure that the portion of the donation that exceeds the value of the property or services supplied is not subject to the GST/HST.

This measure will apply to supplies made after March 22, 2016.

Administrative and Other Measures

CRA Service Improvements

The budget proposed additional funding to the Canada Revenue Agency to:

  • Enhance CRA telephone services, including introducing a dedicated telephone support line for tax service providers as a pilot project
  • Make the CRA’s written correspondence more straightforward and easy to read by revamping the structure, design and format of its correspondence
  • Clarify the rules governing the political activities of charities by having Finance and the CRA engage in discussions and an online consultation with charities and stakeholder groups 
  • Increase the CRA’s capacity to resolve taxpayer objections and provide more timely resolutions 
  • Expand the CRA’s local community organization volunteer program to help eligible Canadians with modest incomes complete their tax returns and notify lower-income non-filers about their eligibility for tax credits

The budget says that these proposed enhancements are intended to increased compliance and fairness, which will allow the CRA to direct its efforts towards cracking down on tax evasion and aggressive tax avoidance.

The budget also proposes additional funding for the CRA to improve its ability to collect outstanding tax debts.

How We All Compare

The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to March 22, 2016.

 

 

2016 Corporate Tax Rates

 

 

Top 2016 Personal Rates

General
%

M&P
%

Small Business
%

2016 Prov. Sales Tax

B.C.

47.70

26.00

26.00

13.50

7.00

Alta.

48.00

27.00

27.00

13.50

-

Sask.

48.00

27.00

25.00

12.50

5.00

Man.

50.40

27.00

27.00

10.50

8.00

Ont.

53.53

26.50

25.00

15.00

8.00(4)

Qué.

53.31

26.90

26.90

18.50(2)

9.975(5)

N.B.

53.30

27.00(1)

27.00(1)

14.50

8.00(4)(6)

N.S.

54.00

31.00

31.00

13.50

10.00(4)

P.E.I.

51.37

31.00

31.00

15.00

9.00(4)

N.L.

48.30

29.00

20.00

13.50

8.00(4)

Yukon

48.00

30.00

17.50

13.50(3)

-

N.W.T.

47.05

26.50

26.50

14.50

-

Nunavut

44.50

27.00

27.00

14.50

-

  1. The general corporate tax rate will increase to 14%, resulting in a combined federal/provincial rate of 29%, effective April 1, 2016.
  2. Quebec provides a rate reduction for manufacturing SMEs.  Where certain conditions are met, the maximum reduction available is 4%, for a combined rate of 14.5%.  Note that a lessor reduction may be available to certain manufacturing SMEs where not all conditions are met.
  3. The tax rate for M&P profits eligible for the small business deduction is 12%.
  4. As part of the HST (combined rates are 15% in Nova Scotia and 14% in Prince Edward Island and 13% in Ontario, New Brunswick (see note 6) and Newfoundland & Labrador).
  5. The QST system is harmonized with the GST, though two separate tax systems remain – the GST and the amended QST.
  6. The provincial portion of the HST will increase to 10%, resulting in a combined HST rate of 15%, effective July 1, 2016. 

(Source: Federal Government)

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