Federal Budget Report 2019

Federal Budget Report 2019

Federal Budget Report 2019

On March 19, 2019, the Honourable Bill Morneau presented his fourth budget as Minister of Finance.

The 2019 Federal Budget, entitled “Investing in the Middle Class”, focuses on:

  1. Making Home ownership more affordable for first-time buyers.
  2. Help workers gain new skills.
  3. Preparing young Canadians for good jobs.
  4. Helping Canadians with the cost of prescription drugs.
  5. Support low-income Canadian seniors who choose to stay in the workforce.
  6. Support municipalities’ local infrastructure priorities.
  7. Give all Canadian’s access to high speed internet.
  8. Lower Canadian’ energy costs.
  9. Advance reconciliation with Indigenous Peoples.

This budget, the final one before the federal election scheduled for the fall, introduced several key measures affecting the bottom line of both businesses and individuals.

The federal government expects a deficit of $14.9 billion for the 2018-19 fiscal year, down from the original projection of $18.1 billion in last year’s budget, and $19.8 billion for the 2019-20 fiscal year, which includes a $3 billion contingency reserve.

The deficit is then expected to decline to $9.8 billion for the 2023-24 fiscal year. Finance Minister Morneau did not include a timeline for balancing the budget. 

Highlights

  • Projected deficit of $14.9 billion for 2018-19
  • Projected deficit of $19.8 billion 2019-20
  • No timetable set for balancing the federal budget

Projections of federal surplus (deficit) and debt

 

Surplus (Deficit)

Outlook

Federal Debt

 

$billion

$billion

% of GDP

2017-18

(19.0)

671.3

31.3

2018-19

(14.9)

685.6

30.8

2019-20

(19.8)

705.4

30.7

2020-21

(19.7)

725.1

30.5

2021-22

(14.8)

739.8

30.0

2022-23

(12.1)

751.9

29.3

2023-24

(9.8)

761.7

28.6

Breaking Down the Budget!

Key Economic Statistics (In Billions $)

 

2019-20

Revenues:

 

a)       Personal Income taxes

$170.4

b)      Corporate Income taxes

46.3

c)       GST

40.8

d)      Other income tax

9.7

e)      Custom import duties

6.3

f)        EI premium revenues

21.7

g)       Other excise taxes/duties

12.3

h)      Fuel charge proceeds

2.3

i)        Other revenues

    28.7

Total revenues

$338.8

 

 

Expenses:

 

a)       Elderly benefits

$56.2

b)      EI

19.9

c)       Children’s benefits

24.3

d)      Federal transfers (Health & Other Social programs)

76.9

e)      Direct program expenses

152.1

f)        Adjustment for risk

3.0

g)       Public debt charges

     26.2

Total expenses

$358.6

 

 

Deficit ($338.8 – 358.6)

$    (19.8)

PERSONAL TAX MEASURES

No Tax Rate Increase or Decrease in 2019!

There are no individual income tax rate or tax bracket changes in this budget.  The brackets will continue to be indexed for inflation.  They appear as follows:

Personal Marginal Tax Rates

 

2019

 

2018

Tax brackets

Tax Rate

Tax brackets

Tax Rate

$0 – $46,630

15.0%

$0 – $46,605

15.0%

$47,630 – $95,259

20.5%

$46,606 – $93,208

20.5%

$95,259 – $147,667

26.0%

$93,209 – $144,489

26.0%

$147,667 – 210,371

29.0%

$144,490 – 205,842

29.0%

> $210,371

33.0%

> $205,842

33.0%

 

Personal tax credits for 2019 will be indexed by 1.022%.   The maximum tax credit amounts and actual Federal tax credits for 2018 and 2019 are set out below.

Federal Non-Refundable Tax Credits

 

2018

2019

Maximum Amount

Federal Tax Credit

Maximum Amount

Federal Tax Credit

Basic Personal Amount

$11,809

1,771

$12,069

1,801

Spousal Amount

11,809

1,771

12,069

1,801

Eligible dependent amount

11,809

1,771

12,069

1,801

Age amount

7,333

1,100

7,494

1,124

Canada Caregiver credit

6,985

1,047

7,140

1,071

CPP Contributions

2,594

389

2,749

412

EI Contributions

858

129

860

129

Canada Employment Amount

1,195

179

1,222

183

Pension income amount

2,000

300

2,000

300

Disability amount

8,235

1,235

8,416

1,262

Disability supplement

4,804

721

4,909

736

Tuition tax credit amount

Variable

Variable

Variable

Variable

Adoption expenses

15,905

2,386

16,255

2,438

Medical expenses

Variable

Variable

Variable

Variable

Medical expenses (other dependents)

Variable

Variable

Variable

Variable

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

Canada Training Benefit

The budget proposes to introduce the Canada Training benefit (CTB) to address barriers to professional development for working Canadians. 

The CTB includes two key components – a new non-taxable Canadian Training Credit (CTC) to help with the cost of training fees, and a new Employment Insurance (EI) Training Support Benefit to provide income support for individuals that are required to take time off work. 

The government also proposes to consult with provinces and territories on changes to labour legislation to support new leave provisions to protect workers.

Canada Training Credit

Budget 2019 introduces a refundable tax credit that will be available to help cover the cost of up to one-half of eligible tuition and fees associated with training (generally the same tuition and fees under the same rules for the tuition tax credit).

Eligible individuals will accumulate $250 each year in a notional account which can be used to cover the training costs.

To accumulate the $250 each year, a Canadian resident individual (who is between 25 and 64 years of age at the end of the year) must file a tax return, have working-type earnings in excess of $10,000 and have net income that does not exceed the top of the third tax bracket ($147,667 for 2019).

The maximum accumulation over a lifetime will be $5,000, which will expire at the end of the year in which the individual turns 65.

The amount of the refundable credit that can be claimed in a taxation year will be equal to the lesser of one-half of the eligible tuition and fees paid in respect of the year and the individual’s notional account balance.

The refundable Canada training credit will reduce the amount that will qualify as an eligible expense for the tuition tax credit.

The annual accumulation will start with the 2019 taxation year and the first credit will be able to be claimed for the 2020 taxation year.

EI Training Support Benefit

The Employment Insurance (EI) Training support benefit will be available through the EI program and will provide up to four weeks of income support for four years. 

The EI support benefit will be paid 55% of a person’s average weekly earnings (subject to EI limits) and is designated to cover living expenses while the person is on training without their regular pay cheque.  This new benefit is expected to be launched in late 2020. 

To support small business, the government also proposes to introduce an EI Small Business Premium Rebate to offset the upward pressure on EI premiums resulting from the new benefit.

Employee Stock Options

Where a corporation grants stock options with a fair market value (FMV) exercise price to employees, paragraph 110(1)(d) of the Income Tax Act (the Act) provides a deduction equal to 50% of the benefit realized on the exercise or disposition of options where certain other conditions are satisfied (the stock option deduction).

Budget 2019 seeks to limit the availability of the stock option deduction where options are granted to employees of “large, long-established, mature firms.”

The proposals would limit the availability of the stock option deduction to an annual maximum of $200,000 of stock option grants (based on the fair market value of the underlying shares on the date of grant).

Example:

An employee is granted 10,000 options to purchase shares of their employer, Company A, at a time when the FMV of Company A’s shares is $100. Since the value of the shares represented by the options at the time of grant is $1m, the stock option deduction will only apply to 2,000 ($200,000/$100) options granted in the year.

Budget 2019 provides that the stock option deduction will remain unchanged for “startups and rapidly growing Canadian business”. The budget documents provide that further details on this measure will be released before the summer of 2019, and the Notice of Ways does not contain any further information.

The proposals ostensibly seek to align the Canadian stock option regime with the US incentive stock option rules, but a number of questions remain.

Obvious questions concern the definition of “startups and rapidly growing Canadian businesses” which will not be subject to the limits.

It is possible that these terms may refer to stock options granted by corporations that are Canadian-controlled private corporations (CCPCs), but there are many large CCPCs that could not be considered to be startups or rapidly growing Canadian business.

It is also unclear whether the limit would only apply to the 110(1)(d) deduction or whether it would also apply to the alternate deduction under 110(1)(d.1) for options granted or shares issued by a CCPC to arm’s length employees.

Presumably, corporations that do not qualify as “startups or rapidly growing Canadian businesses” will need to track each stock option grant to determine the amount of the grant that will be eligible for the stock option deduction.

The budget documents note that, “Any changes will apply on a go-forward basis only and would not apply to stock options granted prior to the announcement of the legislative proposals to implement any new regime.” It therefore appears that stock options granted after Budget 2019, but before the announcement of the legislative proposals, would not be subject to the new regime.

NEW!  Registered plans:  Permitting Additional Types of Annuities!

To allow for greater flexibility in managing retirement savings, Budget 2019 introduces two new types of annuities for certain registered plans for 2020 and subsequent taxation years, including advanced life deferred annuities and variable payment life annuities.

Advanced Life Deferred Annuities

The tax rules will be amended to permit an advanced life deferred annuity (ALDA) to be a qualifying annuity purchase under an RRSP, RRIF, deferred profit sharing plan (DPSP), pooled registered pension plan (PRPP) and a defined contribution registered pension plan (RPP), as well as a qualified investment for a trust governed by an RRSP or RRIF.

An ALDA will be a life annuity, the commencement of which may be deferred until the end of the year in which the annuitant turns 85. 

The value of an ALDA will not be included in calculating the minimum amount required to be withdrawn in a year from a RRIF, PRPP or a defined contribution RPP after the year in which the ALDA is purchased.

Individuals will be subject to both a lifetime ALDA limit in relation to a particular qualifying plan equal to the sum of the value of all property (other than most annuities) held in the qualifying plan at the end of the previous year, and any amounts from the qualifying plan used to purchase ALDAs in previous years.

In addition, an individual will also be subject to a comprehensive lifetime ALDA dollar limit of $150,000 for all qualifying plans (indexed to inflation for taxation years after 2020, rounded to the nearest $10,000).

Individuals who exceed their ALDA limit will be subject to a 1% per-month penalty tax on the excess; however, in certain circumstances this tax may be waived or cancelled.

Certain requirements must be met for an annuity contract to qualify as an ALDA.

For example, the contract must provide for annual or more frequent periodic payments for the life of the annuitant or for the joint lives of the annuitant and the annuitant’s spouse or common-law partner beginning no later than the end of the year in which the annuitant turns 85 years of age.

Where the ALDA requirements are not met, existing rules for non-qualifying annuity purchases and non-qualified investments will apply.

Variable Payment Life Annuities

Currently, the tax rules require that retirement benefits from a PRPP or defined contribution RPP be provided to a plan member by means of a transfer of funds from the member’s account to an RRSP or RRIF of the member.

Budget 2019 proposes to amend the tax rules to permit PRPPs and defined contribution RPPs to provide a variable payment life annuity (VPLA) to members directly from the plan.

A VPLA will provide payments that vary based on the investment performance of the underlying annuities fund and on the mortality experience of VPLA annuitants. Administrators of a PRPP or defined contribution RPP will be allowed to establish a separate annuities fund under the plan to receive transfers of amounts from members’ accounts to provide VLPAs (i.e., direct employee and employer contributions to the annuities fund will be prohibited).

For a plan to establish such an arrangement, a minimum of 10 retired members must participate in the VPLA arrangement on an ongoing basis. In addition to complying with existing tax rules for PRPPs and defined contribution RPPs, additional requirements must be met by a VLPA.

For example, payments must commence by the later of the end of the year in which the member attains 71 years of age and the end of the calendar year in which the VLPA is acquired.

The government will consult on potential changes to the federal pension benefits standards legislation to accommodate VPLAs for federally regulated PRPPs and defined contribution RPPs.

Provincial pension benefits standards legislation will need to be amended if a province wishes to permit VPLAs for provincially regulated PRPPs and defined contribution RPPs.

Registered Disability Savings Plan: Cessation of Eligibility for the DTC

Under existing tax rules, when a beneficiary of a registered disability savings plan (RDSP) ceases to be eligible for the disability tax credit (DTC), no contributions may be made to the RDSP, and no Canada disability savings grants and bonds may be paid into the RDSP.

In addition, the RDSP must be closed by the end of the year following the first full year throughout which the beneficiary is not eligible for the DTC, unless the plan holder elects to extend the life of the RDSP for four additional years if a medical practitioner has certified in writing that the beneficiary will become DTC eligible in the foreseeable future.

During the period of the election, no contributions may be made and no new grants or bonds will be paid, but withdrawals are permitted subject to the regular limitations.

For 2021 and later years, Budget 2019 proposes to remove the time limitation on the period that an RDSP may remain open after a beneficiary ceases to be DTC eligible, and to remove the requirement for medical certification that the beneficiary is likely to become DTC eligible in the foreseeable future.

Existing rules that apply when an election is filed to extend the life of an RDSP will continue to apply subject to a number of modifications. In particular, withdrawals from the RDSP will continue to be subject to the proportional repayment rule, but the assistance holdback amount (generally the amount of grants and bonds paid into the plan in the 10-year period preceding the payment) will be modified, depending on the beneficiary’s age.

In addition, a rollover of proceeds from a deceased individual’s RRSP or RRIF to the RDSP of a financially dependent infirm child or grandchild will be permitted only if the rollover occurs by the end of the fourth calendar year following the first full year throughout which the beneficiary is ineligible for the DTC. If a beneficiary regains eligibility for the DTC in a year, the regular RDSP rules will once again apply to the RDSP commencing in that year.

As a transitional measure, an RDSP issuer will not be required to close an RDSP after 18 March 2019 and before 2021 solely because an RDSP beneficiary ceases to be eligible for the DTC.

Affordable Housing

The federal government enhanced the current Home Buyer’s Plan and introduced the First-Time Home Buyer Incentive, which will provide qualifying new home buyers access to an interest-free loan to reduce the amount of money required from an insured mortgage, without increasing their down payment.

Home Buyers’ Plan

To provide first-time home buyers with greater access to their RRSPs to purchase or build a home, Budget 2019 proposes to increase the withdrawal limit for 2019 and subsequent years to $35,000 from $25,000.

Access will also now be extended to help Canadians maintain home ownership after the breakdown of a marriage or common-law partnership. This measure will apply to withdrawals made after 2019.

Support for First Time Home Buyers

The budget proposes to introduce a First Time Home Buyer Incentive, which is an interest-free shared equity mortgage that would provide eligible first-time home buyers with the ability to lower their borrowing costs by sharing the cost of buying a home with Canada Mortgage and Housing Corporation (CMHC). 

Eligible first-time home buyers who have the minimum down payment for an insured mortgage would apply to finance a portion of their home purchase through a shared equity mortgage with CMHC. 

CMHC would offer qualified first-time home buyers a 10% shared equity mortgage for a newly constructed home or a 5% shared equity mortgage for an existing home, thereby reducing the monthly payments required to purchase a home.

The buyer would repay the incentive at re-sale. The incentive would be available to first-time home buyers with household incomes under $120,000 per year. The buyers’ insured mortgage and incentive amount cannot be greater than four times the buyer’s annual household incomes.

Carrying on Business in a Tax-Free Savings Account

To recognize that a tax-free savings account (TFSA) holder is typically in the best position to know whether the activities of the TFSA constitute carrying on a business, Budget 2019 proposes that the joint and several liability for tax owing on income from carrying on a business in a TFSA be extended to the TFSA holder.

The joint and several liability of a trustee will be limited to the property held in the TFSA at that time plus the amount of all distributions on or after the date the assessment is sent.

This measure will apply to 2019 and subsequent taxation years.

Change of Use Rules for Multi-Unit Residential Properties

For tax purposes, a taxpayer is deemed to dispose of, and reacquire, a property when the taxpayer converts the property from an income-producing use to a personal use, or vice versa. 

Where the use of an entire property is changed to an income-producing use, or an income-producing property becomes a principle residence, the taxpayer may elect that this deemed disposition not apply.  

This election can provide a deferral of the realization of any accrued capital gain on the property until it is realized on a future disposition.  The deemed disposition also occurs when the use of part of a property is changed, but currently, a taxpayer cannot elect out of the deemed disposition that arises on a change in use of part of a property.

To improve the consistency of the tax treatment of owners of multi-unit residential properties in comparison to owners of single-unit residential properties, Budget 2019 proposes to allow a taxpayer to elect that the deemed disposition that normally applies on a change of use of part of a property not apply. This measure will apply to changes on or after 19 March 2019.

Tax Measures for Kinship Care Providers

The Canada workers benefit is a refundable tax credit that supplements low-income workers and improves work incentives for low-income Canadians, with a higher benefit amount being provided to eligible families (couples and single parents) than to single individuals with no dependents.

Budget 2019 proposes to amend the Income Tax Act to clarify that an individual may be considered a parent of a child in their care for the purpose of the Canada workers benefit regardless of whether they receive financial assistance under a kinship care program.  This measure will apply for the 2009 and subsequent taxation years.

Budget 2019 also proposes to amend the Income Tax Act to clarify that financial assistance payments received under a kinship care program are neither taxable nor included in income for the purpose of determining entitlement to income-tested benefits and credits. This measure will also apply for 2009 and subsequent taxation years.

Medical Expense Tax Credit

Budget 2019 proposes to amend the Income Tax Act to reflect the current regulations for accessing cannabis for medical purposes.

This measure will apply to expenses incurred on or after 17 October 2018.

Donation of Cultural Property

The budget proposes to amend the ITA to remove the requirement property be of “national importance” in order to qualify for the enhanced tax incentives for donations of cultural property.  This measure will apply in respect of donations made on or after March 19, 2019.

Non-Refundable Tax Credit for Digital Subscriptions

As announced in the 2018 fall economic statement, Budget 2019 confirms the introduction of a new temporary nonrefundable tax credit for digital subscriptions.

More specifically, Budget 2019 proposes a 15% non-refundable tax credit on amounts paid by individuals for eligible digital news subscriptions, subject to a cap on $500 annually (limited to the cost of a standalone digital subscription where the subscription is a combined digital and newsprint subscription). The credit will apply to amounts paid after 2019 and before 2025.

Eligible digital subscriptions will be those that entitle a taxpayer to access content provided in digital form by a qualified Canadian journalism organization (QCJO) that is primarily engaged in the production of written content (see above under Business income tax measures for more details on QCJOs).

A subscription with a QCJO carrying on a broadcasting undertaking (as defined in the Broadcasting Act) will not qualify for the credit.

OTHER PERSONAL TAX MEASURES

Mutual Funds: Allocation to Redeemers Methodology

Deferral

Certain mutual fund trusts have been using the allocation to redeemer’s methodology to allocate capital gains to redeeming unitholders in excess of the capital gains that would otherwise have been realized by these unitholders on the redemption of their units.

This has resulted in a deferral in the realization of capital gains for the remaining unitholders because the excess portion does not need to be allocated by the mutual fund trust. This unrealized capital gain is taxed only when the remaining unitholders redeem their units.

Budget 2019 proposes to introduce a new rule that would deny a mutual fund trust a deduction in respect of the portion of an allocation made to a unitholder on a redemption of a unit of the mutual fund trust that is greater than the capital gain that would otherwise have been realized by the unitholder on the redemption, if the following conditions are met:

  • The allocated amount is a capital gain
  • The unitholder’s redemption proceeds are reduced by the allocation

This measure will apply to taxation years of mutual fund trusts that begin on or after 19 March 2019.

Character conversion

Certain mutual fund trusts have also been using the allocation to redeemer’s methodology in a way that allows the mutual fund trust to convert the returns on an investment that would have the character of ordinary income to capital gains for their remaining unitholders.  

This character conversion planning is possible when the redeeming unitholders hold their units on income account, but other unitholders hold their units on capital account.

Budget 2019 proposes to introduce a new rule that will deny a mutual fund trust a deduction in respect of an allocation made to a unitholder on a redemption, if:

  • The allocated amount is ordinary income
  • The unitholder’s redemption proceeds are reduced by the allocation

This measure will apply to taxation years of mutual fund trusts that begin on or after 19 March 2019.

Pensionable Service under an Individual Pension Plan (IPP)

To prevent planning undertaken to circumvent the prescribed transfer limits related to individual pension plans (IPPs), Budget 2019 proposes to prohibit IPPs from providing retirement benefits in respect of past years of employment that were pensionable service under a defined benefit plan of an employer other than the IPP’s participating employer (or its predecessor employer).

Any assets transferred from a former employer’s defined benefit plan to an IPP that relate to benefits provided in respect of prohibited service will be considered to be a non-qualifying transfer that is required to be included in the income of the member for income tax purposes.

This measure applies to pensionable service credited under an IPP on or after 19 March 2019.

Student Loan Programs

Interest paid on a student loan is eligible for a non-refundable tax credit on a student’s tax return, either in the year it is paid, or in the next 5 years if it has not previously been claimed.  Although no change to this mechanism was announced, the budget proposed that the interest rate on Canada Student Loans be lowered from prime plus 2.5% on floating interest loans to prime, and from prime plus 5% on fixed rate loans to prime plus 2% starting in 2019-20.   In addition, the budget proposes to amend the Canada Student Financial Assistance Act, so that student loans will not accumulate any interest during the six-month grace period after a student leaves school.

BUSINESS TAX MEASURES

No New Corporate Taxes Rate Increases for 2019!

No changes are proposed to the corporate income tax rates or to the $500,000 small-business income limit of a Canadian-controlled private corporation (CCPC).  

The enacted (or announced) Canadian federal corporate income tax rates are summarized as follows:

Federal Corporate Income Tax Rates

 

2017

2018

2019

General Corporate Rate

15.0%

15.0%

15.0%

Small Business Rate

10.5%

10.0%

9.0%

CCPC investment income rate

34.67%

34.67%

34.67%

Small Business Deduction: Farming and Fishing income

The small business deduction (SBD) allows a reduced rate of tax on income from an active business carried on in Canada by a Canadian-controlled private corporation (CCPC), up to a threshold of $500,000.  

There are various rules in place to prevent the inappropriate multiplication of the SBD, including rules that may disqualify “specified corporate income” from eligibility for the deduction.  

Budget 2016 introduced measures to limit access to the small business deduction under certain corporate and partnership structures that were previously able to multiply the number of small business deduction limits within a group.

For example, a CCPC’s specified corporate income is not eligible for the small business deduction under these rules. Specified corporate income includes income earned from the provision of services or property, directly or indirectly, to another 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 private corporation.

Some exceptions apply, including certain income earned by a CCPC’s farming or fishing business from sales to a farming or fishing co-operative corporation.

Effective retroactively to taxation years beginning after 21 March 2016, the 2019 federal budget proposes to enhance this exception from specified corporate income to include a CCPC’s income from sales of farming products or fishing catches of its farming or fishing business to any arm’s-length purchaser corporation.

This exception will not apply to amounts allocated to a CCPC as partronage payments from a purchaser corporation.

Accelerated Capital Cost Allowance

Budget 2019 confirms the government’s intention to proceed with the following three capital cost allowance (CCA) acceleration measures announced in the 21 November 2018 fall economic statement:

  • Full expensing for the cost of manufacturing and processing machinery and equipment on a temporary basis
  • Full expensing for the cost of specified clean energy equipment on a temporary basis
  • A temporary accelerated investment incentive

An immediate write-off of the cost of M&P manufacturing equipment (previously qualifying for a temporary accelerated CCA rate of 50% on a declining-balance basis) and specified clean energy equipment (previously qualifying for either an accelerated 30% or 50% CCA rate, both on a declining-balance basis) is available under these proposals for acquisitions after 20 November 2018 if the property becomes available for use prior to 2024.  

A reduced first-year write-off of 75% of the cost will be available for property that becomes available for use in 2024 or 2025, and a 55% first-year write-off will apply for property that becomes available for use in 2026 or 2027.

The proposals also include an accelerated investment incentive that provides for a temporary enhanced CCA deduction of up to three times the normal first-year CCA deduction for other capital assets subject to the CCA regime, with a few exceptions.

This measure applies to property that would otherwise be subject to the current half-year rule acquired after 20 November 2018 and available for use before 2024. The enhanced allowance is reduced to two times the normal first-year CCA in the 2024–2027 period.

Zero-Emission Vehicles

As part of its efforts to help build a cleaner economy, the federal government announced measures to encourage Canadians to choose zero-emission vehicles by making them more convenient and affordable:

  • For businesses, Budget 2019 provides proposes a full tax write-off for zero-emission vehicles in the year in which the vehicle is purchased beginning on or after 19 March 2019 and before 1 January 2024. Eligible vehicles will include electric battery, plug-in hybrid (with a battery capacity of at least 15 kWh) or hydrogen fuel cell vehicles including light-, medium-, and heavy-duty vehicles that are purchased by a business.

Specifically, the minister has proposed a temporary enhanced first-year CCA rate of 100% for eligible zero-emission vehicles.

Two new CCA classes will also be created.

First, class 54 will be created for zero-emission vehicles that would otherwise be included in class 10 or 10.1. However, for each eligible vehicle, this class has a limit of $55,000 (plus sales taxes) on the amount of CCA deductible. (Note that the limit of $55,000 will be reviewed annually due to ensure it remains in line with market changes over time.)

Second, class 55 will be created for zero-emission vehicles otherwise included in class 16.

Changes are also proposed to the GST/HST legislation to increase the maximum input tax credit (ITC) claims on the purchase and improvements to zero-emission vehicles to correspond to the income tax measures noted above.

For individuals, proposed measures include a new federal purchase incentive of up to $5,000 for electric battery or hydrogen fuel cell vehicles retailing for less than $45,000.

In addition, the federal government will invest $130 million over 5 years to expand the network of vehicle charging and refueling stations across Canada, including remote locations.

The Scientific Research and Experimental Development (SR&ED) program

Prior to Budget 2019, Canadian-controlled private corporations (CCPCs) could access the enhanced SR&ED tax credit rate of 35% for expenditures up to $3 million each year. However, this limit was impacted by the taxable income and taxable capital in the previous taxation year.

Budget 2019 proposes to eliminate the use of taxable income in the previous taxation year as a factor in determining a CCPC’s annual expenditure limit for the purpose of accessing the 35% rate.

This change will be effective for taxation years that end on or after 19 March 2019.

The new rules are intended to better support growing innovative businesses as they grow and scale up. However, keeping the taxable capital thresholds in place will help to ensure that the enhanced rate remains targeted towards small and medium-sized businesses.

Support for Canadian Journalism: Refundable Labour Tax Credit

As announced in the 2018 fall economic statement, Budget 2019 confirms the introduction of a new refundable tax credit for qualifying journalism organizations producing original news.

More specifically, Budget 2019 proposes a 25% refundable tax credit on salary or wages paid to eligible newsroom employees of qualifying journalism organizations, subject to a cap on labour costs of $55,000 per eligible newsroom employee per year.

The credit will apply to salary or wages earned in respect of a period on or after 1 January 2019.

Qualifying journalism organization: For purposes of this credit, a qualifying journalism organization will be a Qualified Canadian journalism organization (QCJO) that is primarily engaged in the production of original written news content.

A QCJO that is a corporation must be either listed on a stock exchange in Canada without being controlled by non-Canadian citizens if it is a public corporation, or, if it is a private corporation, be at least 75% owned by Canadian citizens or such public corporations.

Organizations carrying on a broadcasting undertaking (as defined in the Broadcasting Act) or receiving funding from the Aid to Publishers component of the Canada Periodical Fund will not qualify for the credit.

Eligible newsroom employees: Subject to any recommendations by an independent panel to be established, an eligible newsroom employee will initially generally be an employee of a QCJO who works for a minimum of 26 hours per week, on average, and is employed by the QCJO (or is expected to be employed) for at least 40 consecutive weeks.

The employee will also be required to spend 75% of his or her time engaged in the production of news content, including by researching, collecting information, verifying facts, photographing, writing, editing, designing or otherwise preparing content.

QCJO: For the purposes of this credit, as well as the personal income tax credit for digital subscriptions (see below under Tax measures for individuals and trusts), and the qualified donee status proposed amendment (see below under Charities and nonprofit organizations), a QCJO will be required to be organized as a corporation, partnership or trust operating in Canada and meet additional conditions.

Subject to any recommendations by an independent panel to be established, these additional conditions will include:

  • If the organization is a corporation, it must be incorporated and resident in Canada, and have its chairperson and at least 75% of its directors be Canadian citizens (similar criteria will apply in case of organizations that are partnerships or trusts, so that generally Canadian citizens or such corporations will be required to own at 75% of the interests in them).
  • It must be primarily engaged in the production of original news content primarily focused on matters of general interest and reports of current events (including coverage of democratic institutions and processes), but not primarily focused on a particular topic (e.g., industry-specific news, sports, recreation, arts, lifestyle or institutions).
  • It must regularly employ two or more arm’s-length journalists in the production of its content.
  • It must not be significantly engaged in the production of content to promote goods or services, or the interests (or report on the activities) of an organization, an association or their members, or engaged in the production of content for a government, Crown corporation or government agency.
  • It must not be a Crown corporation, municipal corporation or government agency.
  • It must be designated by an administrative body to be established.

Canadian film or video production tax credit: Canadian-Belgium co-productions

The Canadian film or video production tax credit is a 25% refundable credit provided to qualified corporations in respect of qualified labour expenditures (for up to 60% of the total cost of a production, net of assistance) of an eligible Canadian film or video production.

Audiovisual co-production treaties and similar instruments allow joint production projects of producers from two different countries to qualify for purposes of the Canadian film or video production credit.

Budget 2019 proposes to add The Memorandum of Understanding between the Government of Canada and the Respective Governments of the Flemish, French and German-speaking Communities of the Kingdom of Belgium concerning Audiovisual Coproduction (signed on 12 March 2018) as an instrument qualifying as a co-production treaty for this purpose.

As a result, joint projects of producers from Canada and Belgium may qualify for the Canadian film or video production tax credit, effective 12 March 2018.

Electronic Delivery of Requirements for Information from Banks and Credit Unions

Effective 1 January 2020, the CRA will be allowed to send requirements for information to banks and credit unions electronically, in respect of third-party financial information. Currently, such requests are generally sent by registered mail.

To issue such requirements electronically, the bank or credit union must notify the CRA that it consents to this method of service.

Tax Compliance in the Real Estate Sector

The budget proposes to provide the Canada Revenue Agency (CRA) with $50 million over 5 years, starting in 2019-20, to create four new dedicated residential and commercial real estate audit teams in high risk regions, notably in British Columbia and Ontario.  

These teams will work to ensure that tax provisions regarding real estate are being followed.

INTERNATIONAL TAX MEASURES

Transfer Pricing

Update on the Base Erosion and Profit Shifting (BEPS) Project

Although no legislative changes are proposed in Budget 2019 relating to BEPS, the government continues its commitment to safeguarding Canada’s tax system and be an active participant in the OECD/G20 BEPS initiative.

The federal government reaffirms its commitment to work with its international partners to improve and update the international tax system, and to ensure a coherent and consistent response to fight cross-border tax avoidance.  

Country-by-country reports are an important tool in combatting BEPS by providing the CRA and other tax authorities with new information to better assess transfer pricing risks.

The first exchanges of these reports took place in 2018.  Canada is participating in an OECD review of the standard for these reports to ensure they provide tax administrations with better information that allows for proper assessment of transfer pricing and other BEPS risks.

This review is scheduled to be completed in 2020.

Furthermore, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (known as the Multilateral Instrument or MLI) is an important tool in facilitating a number of the measures developed under the OECD/G20 BEPS project, and in combatting international tax avoidance.

The MLI is intended to allow participating jurisdictions to modify their existing tax treaties without having to individually renegotiate those treaties.

Canada, along with another 86 jurisdictions to date, is a signatory to the MLI. The federal government is taking the necessary steps to enact the MLI into Canadian law and to ratify the MLI as needed to bring it into force.

Order of Application of the Transfer Pricing Rules

Budget 2019 proposes a new measure relating to the relationship between the transfer pricing rules in section 247 with other provisions in the Act.  

Where both the transfer pricing rules and another provision of the Act may apply to the same amount that is relevant to the computation of tax, questions have arisen as to whether adjustments under the transfer pricing rules are made in priority to the application of other provisions.

This may have various implications, including with respect to the applicability of penalties under 247(3).

Budget 2019 proposes to add a new provision intended to clarify that section 247 transfer pricing rules in Part XVI.1 apply in priority to the application of the provisions in other parts of the Act, including the provisions relating to income computation in Part I.

The current exceptions to the application of the transfer pricing rules that pertain to situations in which a Canadian resident corporation has an amount owing from, or extends a guarantee in respect of an amount owing by, a controlled foreign affiliate will continue to apply. This measure will apply to taxation years that begin on or after 19 March 2019.

Reassessment Period

Budget 2019 proposes to expand the applicability of the extended reassessment period for transfer pricing adjustments.

The transfer pricing rules include an expanded definition of “transaction” in subjection 247(1) which includes an “arrangement or event.” This allows the transfer pricing rules to apply to a broad range of situations that may arise in the context of a multinational enterprise’s operations.

Subsection 152(4)(b)(iii)(A) provides an extended three-year reassessment period in respect of a reassessment made as a consequence of a transaction involving a taxpayer and a nonresident with whom the taxpayer does not deal at arm’s length. However, the expanded definition of “transaction” used in the transfer pricing rules does not apply for the purposes of the rule establishing this extended reassessment period.

Budget 2019 proposes to amend the Income Tax Act to provide that the definition of “transaction” used in the transfer pricing rules also be used for the purposes of the extended reassessment period relating to transactions involving a taxpayer and a nonresident with whom the taxpayer does not deal at arm’s length.

This measure will apply to taxation years for which the normal reassessment period ends on or after 19 March 2019.

Foreign Affiliate Dumping

The foreign affiliate dumping (FAD) rules in section 212.3 of the Act are anti-avoidance rules that generally apply if a corporation resident in Canada (a CRIC) that is controlled by a non-resident corporation makes an investment in a foreign affiliate. If applicable, the FAD rules generally result in:

  • A reduction in the paid-up capital of one or more classes of shares of the CRIC (or in certain cases a related corporation resident in Canada)
  • A deemed dividend paid by the CRIC to the controlling non-resident (or in certain cases the dividend may be deemed to be paid by a qualifying corporation resident in Canada or to another non-resident corporation)

Budget 2019 proposes to extend the application of the FAD rules to CRICs that are controlled by a:

  • Non-resident individual
  • Non-resident trust
  • Group of persons that do not deal with each other at arm’s-length, where the group comprises any combination of non-resident corporations, non-resident individuals and non-resident trusts

The proposals will also extend the meaning of “related” for these and certain other specified purposes to ensure that a non-resident trust will be considered related to another non-resident person in circumstances similar to where a non-resident corporation would be so related.

The measure will apply to transactions that occur on or after 19 March 2019.

Cross-border share lending arrangements

Budget 2019 proposes new measures targeting certain cross-border securities lending arrangements (SLAs).

An example of a targeted SLA is where a non-resident person lends a share to a Canadian resident (the Canadian borrower), and the Canadian borrower agrees to return an identical share to the non-resident in the future. The Canadian borrower typically provides collateral as security to the non-resident, and over the term of the arrangement, the Canadian borrower must make payments as compensation for any dividends received on the lent share (dividend compensation payments).

Ultimately, the non-resident retains the same economic risks and returns in respect of the lent share, albeit receiving dividend compensation payments from the Canadian borrower in lieu of receiving dividends directly.

The Act contains rules meant to generally ensure that a lender under an SLA is in the same tax position as if the securities had not been lent, including rules that determine the character of any dividend compensation payment made by a Canadian borrower to a non-resident for purposes of withholding tax.

These characterization rules deem a dividend compensation payment made under a “fully collateralized” SLA to be a dividend payable to the non-resident on the lent share. As such, a 25% withholding tax would apply, although the rate of withholding tax may be reduced under a tax treaty.

For the purposes of these rules, an SLA is “fully collateralized” if the Canadian resident provides collateral to the non-resident in the form of money or government debt obligations with a value of 95% or more of the lent share, among other conditions.

If an SLA is not “fully collateralized,” the dividend compensation payment is instead deemed to be paid as interest by the Canadian borrower to the non-resident. However, since 2008, no withholding tax applies to interest paid to arm’s-length parties.

Canadian Shares

Budget 2019 proposes amendments impacting situations where a non-resident lends a share of a Canadian corporation to a Canadian borrower.

One proposal addresses situations where the arrangement is designed to fail the “fully-collateralized” test but is, in substance, fully collateralized.

To ensure that a dividend compensation payment made under a SLA by a Canadian borrower to a non-resident in respect of a Canadian share is always treated as a dividend, the dividend characterization rule will apply whether or not the arrangement is “fully collateralized.”

A second proposal addresses situations where the arrangement is designed to fail the requirements for the SLA definition in the Act. In such cases, dividend compensation payments may not be deemed to be either dividend or interest payments, and taxpayers have taken the position that such payments are merely payments under a derivative contract to which withholding tax does not apply.

The proposal extends the characterization rules to apply also to “specified security lending arrangements.”

This term was introduced in Budget 2018 and generally extends the characterization rules to apply to payments in respect of any arrangement that is substantially similar to an SLA but as a technical matter fails certain conditions required to be an SLA.

Finally, Budget 2019 proposes complementary amendments to ensure that the SLA rules cannot be used to obtain unintended tax benefits, such as ensuring that the deemed dividend under a dividend compensatory payment is deemed to be paid by the issuer of the lent share to the non-resident, and not by the Canadian borrower, for purposes determining the rate of tax that may be imposed under a dividend article in a tax treaty.

These measures will apply to compensation payments that are made on or after 19 March 2019 unless the securities loan was in place before that date, in which case the amendments will apply to compensation payments that are made after September 2019.

Foreign shares

The existing SLA characterization rules may apply inappropriately in cases where the lent share is a share of a corporation that is not resident in Canada, as they may characterize dividend compensation payments in respect of foreign shares as a dividend payment that is subject to withholding tax, whereas if the non-resident continued to hold the foreign share directly, Canadian withholding tax would not apply in respect of dividends paid.

Budget 2019 proposes relieving measures to broaden the existing exemption from Canadian dividend withholding to include any dividend compensation payment made by a Canadian borrower to a non-resident under an SLA if the SLA is “fully collateralized” and the lent security is a foreign share.

These measures will apply to dividend compensation payments that are made on or after 19 March 2019.

Charities and Non-Profit Organizations

Support for Canadian Journalism: Qualified Donee Status [This was also addressed above under personal tax measures]

As announced in the 2018 fall economic statement, Budget 2019 confirms that registered journalism organizations will be added as a new category of qualified donee.

This addition will be applicable as of 1 January 2020.

Registered journalism organizations will be required to be a corporation or a trust that is a qualified Canadian journalism organization (QCJO) and that is constituted and operates for purposes exclusively related to journalism (see above under Business income tax measures for more details on QCJOs).

Any business activities carried on by these organizations will be required to be related to their purposes. These organizations will not be permitted to distribute their profits, if any, or allow their income to be available for the personal benefit of certain individuals connected with the organization.

Additional conditions to be recognized as a registered journalism organization will include:

  • Having a board of directors or trustees, dealing at arm’s length with each other
  • Not being factually controlled by a person or group of related persons
  • Not generally receiving gifts that represent more than 20% of its total revenues (including donations) from one source (excluding bequests and one-time gifts made on the initial establishment of the organization)

Registered journalism organizations will be required to file an annual return and they will be listed on the Government of Canada website.

The names of any donors that make donations of more than $5,000 and the amount donated will have to be disclosed in the organization’s annual return, which will be available to the public.

Donations of Cultural Property [Also address in personal tax measures]

Budget 2019 proposes, effective 19 March 2019, to amend the Income Tax Act and the Cultural Property Export and Import Act to remove the requirement that property be of “national importance” to qualify for the enhanced tax incentives for donations of cultural property (i.e., the charitable donation tax credit for individuals, the donation taxable income deduction for corporations, and the income tax exemption for capital gains that may arise on the disposition).

INDIRECT TAX

GST/HST and Excise Duty Legislative Amendments

Human Ova and In Vitro Embryos

Budget 2019 proposes to zero-rate the supply and import of human ova and in vitro embryos. This measure will apply to supplies and imports made after 19 March 2019.

Foot Care Devices Supplied on the Order of a Podiatrist or Chiropodist

Currently, certain medical and assistive devices can be supplied on a zero-rated basis only when supplied on the written order of a physician, nurse, physiotherapist or occupational therapist. Podiatrists and chiropodists, although they are regulated health professionals in most provinces, are not listed among practitioners on whose order certain medical devices can be sold on a zero-rated basis.

Budget 2019 proposes to add licensed podiatrists and chiropodists to the list of practitioners on whose order supplies of foot care devices are zero-rated.

This measure will apply to supplies of these items made after 19 March 2019.

Multidisciplinary Health Care Services

Budget 2019 proposes to exempt from GST/HST the supply of multidisciplinary health services when rendered by a team of health professionals, such as doctors, physiotherapists and occupational therapists, whose services are exempt when supplied separately.

The exemption will apply provided that all or substantially all of the consideration for the service is reasonably attributable to services rendered by such a team of health professionals acting within the scope of their profession.

This measure will apply to supplies of multidisciplinary health services made after 19 March 2019.

EXCISE TAX MEASURES

Cannabis Taxation

Currently five classes of cannabis products are permitted for legal sale: fresh cannabis, dried cannabis, cannabis oil, cannabis plant seeds and cannabis plants.

Duty applies to these at the higher of a flat rate applied to the quantity (by weight) of cannabis contained in the final product and a percentage of the dutiable amount of the product as sold by the producer.

The government released for consultation in December 2018 draft regulations governing the production and sale of additional classes of cannabis products: edible cannabis, cannabis extracts (will include cannabis oil) and cannabis topicals.

Budget 2019 proposes that edible cannabis, cannabis extracts (including cannabis oils) and cannabis topicals be subject to excise duties imposed on cannabis licensees at a flat rate applied to the quantity of total tetrahydrocannabinol (THC) measured in milligrams.

This will simplify tracking the quantity of cannabis material contained in cannabis oils and would allow producers and administrators to more easily calculate and verify excise duties for cannabis edibles, extracts and topicals.

The current excise duty regime and rates for fresh and dried cannabis and seeds and seedlings will be unchanged.

The combined federal-provincial-territorial THC-based excise duty rate for cannabis edibles, cannabis extracts and cannabis topicals (including cannabis oils) is proposed to be $0.01 milligram of total THC.

These proposed changes will come into effect on 1 May 2019 and will apply to any cannabis oil product packaged on or after 1 May 2019.

Other Administrative Tax Measures

Improving Tax Compliance

Significant investments have been made in recent years to strengthen the Canada Revenue Agency’s (CRA’s) capabilities.

Starting in 2015, the CRA expanded the number of audit teams that focus on high-net-worth individuals and their associated corporate structures. As a result, there are now more than 1,100 offshore audits underway, resulting in more than 50 criminal investigations with links to offshore transactions.

To further combat tax evasion and aggressive tax avoidance, Budget 2019 proposes to invest an additional $150.8 million over five years, starting in 2019–20.

This investment is in addition to the $444.4 million and $523.9 million spending previously announced in the 2016 and 2017 federal budgets.

The proposed Budget 2019 investment will allow the CRA to fund new initiatives and extend existing programs, including:

  • Hiring additional auditors, conducting outreach and building technical expertise to target non-compliance associated with cryptocurrency transactions and the digital economy
  • Creating a new data quality examination team to ensure proper withholding, remitting and reporting of income earned by nonresidents
  • Extending programs aimed at combatting offshore non-compliance

Budget 2019 includes an expected revenue impact of $369.0 million over five years from these targeted compliance initiatives.

These amounts do not reflect benefits to provinces and territories, whose tax revenues are also expected to increase.

Further, to help the CRA stay ahead of non-compliance schemes driven by the use of new and advanced technologies, Budget 2019 also proposes to invest $65.8 million over five years to improve the CRA’s information technology systems.

The spending will replace legacy systems to build an infrastructure that is better able to fight tax evasion and aggressive tax avoidance.

Budget 2019 proposes to give the CRA $50 million over five years, starting in 2019-20 to create four new dedicated residential and commercial real estate audit teams in high-risk regions, notably in British Columbia and Ontario.

PENDING LEGISLATION

The government will proceed with the following pending legislative and regulatory proposals and other previously announced measures, modified to take into account consultations and deliberations since their release.

Income Tax

  • Bill S-6, Canada-Madagascar Tax Conventions Act, 2018 (2nd reading (House): 27 February 2019)
  • Legislative proposals re salary overpayments (15 January 2019)
  • 2019 automobile deduction limits announcement (27 December 2018)
  • 2018 fall economic statement notice of ways and means motion (21 November 2018)
    • Full expensing for M&P machinery and equipment
    • Full expensing for clean energy equipment
    • Accelerated investment incentive (also applicable to eligible CDE and COGPE)
  • 2018 fall economic statement additional announcements (21 November 2018)
    • Mineral exploration credit 5-year extension
  • Final list of prescribed drought regions for 2018 (31 October 2018)
  • Bill C-82, Multilateral instrument in Respect of Tax Conventions Act (MLI) (Reported from committee without amendment (House): 1 March 2019)
  • Remaining measures from the 2018 federal budget (tabled 27 February 2018) and from the related 27 July 2018 draft legislation
    • Health and welfare trusts
    • New reporting requirements for trusts
  • 2018 automobile deduction limits announcement (22 December 2017)
  • Tax deferral extension announcement re 2016-17 bovine tuberculosis outbreak (6 November 2017)
  • Final list of prescribed drought regions for 2017 (6 November 2017)
  • Remaining measures from the 16 September 2016 legislative proposals re technical amendments
    • Prescribed shares – employee stock options
  • Remaining measures from the 2016 federal budget (tabled 22 March 2016)
    • New reporting requirements for corporate and partnership life insurance beneficiaries that are not policyholders
    • Expansion of accelerated CCA Classes 43.1 and 43.2 for clean energy assets

Indirect Taxes

  • Draft regulations amending Part I of Schedule 1 and Schedule 2 to the Greenhouse Gas Pollution Pricing Act (23 October 2018) (Regulations establishing the output-based pricing system (OBPS), which will apply to industrial facilities with high emission levels, have yet to be released also)
  • Draft amendments to the Fuel Charge Regulations (23 October 2018)
  • Draft proposals re excise duties on cannabis and amendments to related regulations (17 September 2018)
  • Remaining measures from the 2018 federal budget (tabled 27 February 2018) and from the related 27 July 2018 draft legislation
    • GST/HST holding corporation rules
    • GST/HST regulatory change re printed books rebate
  • Remaining measures from the 2016 federal budget (tabled 22 March 2016)
    • GST/HST joint venture election (stemming from the 2014 proposals under the previous government)

Supporting Farmers in Supply Managed Sectors Following Ratification of New Trade Agreements

With the successful conclusion of the Canada-United States-Mexico Agreement, as well as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Canada is the only G7 country to have free trade agreements with all other G7 nations.

Following the recent ratifications of CETA and CPTPP, Budget 2019 proposes up to $3.9 billion in support for supply-managed farmers:

  • Support will be offered to sustain the incomes of eligible dairy, poultry, and egg farmers, by making available up to $2.4 billion. Of this amount, $250 million has already been provided to support dairy farmers as a result of CETA, therefore a net amount of up to $2.15 billion will be available in coming years to deal with income losses associated with these agreements; and
  • Assistance will also be offered to protect the value of investments made by farmers in supply-managed sectors, through a Quota Value Guarantee Program that will protect against reduction in quota value when the quota is sold. $1.5 billion has been set aside for this demand-driven program.

Details of these programs will be available in subsequent announcements.

Through 2019, the Government will continue to work in partnership with supply management stakeholders to address the impacts on processing, as well as potential future impacts of the Canada-United States-Mexico Agreement.

Appendix

Maximum combined personal marginal income tax rates (as at March 19, 2019)

 

Ordinary Income

2018

2017
%

2018
%

Increase (Decrease)
%

Eligible Dividends
%

Ineligible Dividends
%

Capital Gains
%

Federal only

33.00

33.00

0.00

24.81

27.57

16.50

BC

49.80

49.80

0.00

31.44

44.64

24.90

Alberta

48.00

48.00

0.00

31.71

42.47

24.00

Saskatchewan

47.50

47.50

0.00

29.64

40.37

23.75

Manitoba

50.40

50.40

0.00

37.78

46.67

25.20

Ontario

53.53

53.53

0.00

39.34

47.40

26.76

Quebec

53.31

53.31

0.00

40.00

46.25

26.65

NB

53.30

53.30

0.00

33.51

47.75

26.65

NS

54.00

54.00

0.00

41.58

48.27

27.00

PEI

51.37

51.37

0.00

34.22

45.23

25.69

NL

51.30

51.30

0.00

42.61

44.59

25.65

NWT

47.05

47.05

0.00

28.33

36.82

23.53

Nunavut

44.50

44.50

0.00

33.08

37.79

22.25

Yukon

48.00

48.00

0.00

28.92

42.17

24.00

(Source: Federal Government)

"The way I see it, if you want the rainbow, you gotta put up with the rain." — Dolly Parton