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2016 Federal Budget

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Federal Budget -> 2016 Budget

Post-Budget Announcements

bulletNotice of Ways and Means Motion and Explanatory Notes re changes to the principal residence exemption
bulletdispositions of principal residences must now be reported on the tax return even if the full gain is exempt
bulletelimination of the "one-plus" rule if taxpayer was a non-residence when the property was acquired
bulletchanges re personal trusts

Federal 2016 Budget - March 22, 2016

See the following on the 2016 Federal Budget, Department of Finance and Parliament websites:

bulletBudget 2016 - News Release
bulletTax Measures Table of Contents
bulletTax Measures Supplementary Information
bulletNotice of Ways and Means Motions March 21, 2016
bulletInformation Request IR0217 - Additional financial data submitted on request to the Parliamentary Budgetary Officer
bulletNotice of Ways and Means Motion and Explanatory Notes April 18, 2016
bulletBill C-15 Budget Implementation Act, 2016, No. 1, introduced April 20, 2016, Royal Assent June 22, 2016
bulletIncludes repeal of education and textbook tax credits effective January 1, 2017.
bulletIncludes repeal of changes to age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplement (GIS)
bulletDraft legislative and regulatory proposals relating to the GST/HST for public consultation - July 22, 2016 - provide comments by November 30, 2016
bulletDraft legislative proposals and explanatory notes relating to Income Tax, Sales Tax and Excise Duties - July 27, 2016 - provide comments by September 27, 2016
bulletre mutual fund switching, sales of linked notes, clean energy support, small business deduction, business limit/taxable capital limit, eligible capital property, and other items.
bulletDraft legislative and regulatory proposals and explanatory notes - September 16, 2016 - relating to technical amendments to the Income Tax Act and related legislation
bulletNotice of Ways and Means Motion and Explanatory Notes - October 3, 2016 - re principal residence exemption revisions
bulletNotice of Ways and Means Motion and Explanatory Notes - October 6, 2016 - re CPP enhancements, coming into force January 1, 2019.
bulletBill C-26 An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act - October 6, 2016 - Royal Assent December 15, 2016.  The Order in Council to bring the CPP enhancements in Bill C-26 into force was signed on March 2, 2017, according to the Department of Finance news release.
bulletNotice of Ways and Means Motion and Explanatory Notes to implement certain provisions of the March 22, 2016 budget and other measures - October 21, 2016 - re eligible capital property, small business deduction, Canada Child Benefit indexation and other items.
bulletBill C-29 Budget Implementation Act, 2016, No. 2 - October 25, 2016 - Royal Assent December 16, 2016.
bulletre Canada Child Benefit, small business deduction, eligible capital property rules, sales of linked notes, certain GST/HST measures, and other items.

Not all budget measures are included below.  See the Federal Budget website for complete information.

See also the pre-budget proposals which included the revisions to the tax brackets and tax rates.

Canada Child Benefit

Budget 2016 proposes to create a new Canada Child Benefit (CCB) providing monthly tax-free benefits that are tied to income, to replace the Universal Child Care Benefit (UCCB), Canada Child Tax Benefit (CCTB) and National Child Benefit Supplement (NCBS).  The Canada Child Benefit payments will start in July 2016.

The new CCB will provide a maximum benefit of $6,400 per child under 6 and $5,400 per child aged 6 through 17.  The benefit will be reduced when adjusted family net income is over $30,000.  There will be different % rates of reduction depending on the number of children, and when adjusted family net income exceeds $65,000 the % rates of reduction change.  Entitlement to the CCB for the July 2016 to June 2017 benefit year will be based on adjusted family net income for the 2015 taxation year.  See Canada Child Benefit on the Budget 2016 website for more details.  Budget 2016 proposes to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit.  The reduction of this additional amount based on income will be made in the same manner as the reduction to the CCTB.  The additional amount will be included in the CCB payments made to eligible families.

For a family with 2 children under 6 and adjusted family net income of up to $30,000, the CCB would be $12,800 per year.  For adjusted family net income of $65,000, the CCB would be reduced from $12,800 (2 x $6,400) to $8,075.  The benefit is reduced to zero at adjusted family net income of approximately $107,050.

Budget 2016 also proposes to allow a taxpayer to request retroactive payments of the CCB, CCTB or UCCB, with a 10 year time limit, as in the Taxpayer Relief Provisions, but in a slightly different manner.  A retroactive payment request will be able to be made 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.

See the CCB Calculator on the budget website to find out how much you will receive.  Don't use the one from the Liberal platform, as the results are not based on the currently budgeted factors.

Personal Income Tax Measures

Family Tax Cut

Budget 2016 proposes to eliminate the Family Tax Cut for 2016 and later years.  Legislative proposals announced on December 7, 2015 included elimination of the Family Tax Cut for 2016 and later years.  This has already been incorporated into the Canadian Income Tax and RRSP Savings Calculator.

Northern Residents Deduction

The Northern Residents Deduction, which reduces taxable income, is available to individuals living in prescribed areas in northern Canada for at least 6 consecutive months beginning or ending in a taxation year.  Budget 2016 proposes to increase the maximum 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 deduction, to increase the maximum 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.  For more information on this deduction, see the Canada Revenue Agency (CRA) information for Northern Residents.

Children's Fitness Tax Credit

The 2016 Budget proposes to reduce the children's fitness credit maximum eligible amount to $500 from $1,000, and to eliminate the credit for the 2017 taxation year.  The additional tax credit for a child with a disability will remain at $500 for the 2016 taxation year.

Children's Arts Credit

The 2016 Budget proposes to reduce the children's arts credit maximum eligible amount to $250 from $500, and to eliminate the credit for the 2017 taxation year.  The additional tax credit for a child with a disability will remain at $500 for the 2016 taxation year.

Top Marginal Tax Rate - Consequential Amendments

See Top Marginal Income Tax Rate - Consequential Amendments for information on these consequential amendments.  For Personal Services Businesses, also see the information below in Business Income Tax Measures.

Taxation of Fund Switching in Mutual Fund Corporations

Canadian mutual funds can be in the legal form of a trust or a corporation.  When they are in the form of a corporation, sometimes investors are able to exchange shares of one class of the mutual fund corporation for another class, with no taxable transaction created by the switch.  This does not happen for mutual funds in the form of a trust.  The budget proposes to amend the Income Tax Act so that an exchange of shares of a mutual fund corporation or investment corporation that results in the investor switching between funds will be considered a disposition at fair market value for tax purposes.  Although originally planned to come into effect on October 1, 2016, this will apply to dispositions that occur on or after January 1, 2017.

See Taxation of Switch Fund Shares on the Budget 2016 website.

Donations of Private Corporation Shares and Real Estate - Proposal Will Not Happen

The Federal 2015 Budget announced a proposal to provide an exemption from capital gains tax for certain dispositions of private corporation shares and real estate which occur after 2016.  This measure was not included in Bill C-59, which received Royal Assent on June 23, 2015.  The 2016 Federal Budget announced that this proposal will not happen.

Other personal tax measures, some of which were included in the Liberal Platform:

 - education and textbook tax credits will be cancelled effective January 1, 2017
 - no changes will be made to the stock option deduction
 - reinstate the tax credit for contributions made to labour-sponsored funds.  See Labour-Sponsored Venture Capital Corporations Tax Credit on the Budget 2016 website.
 - introduce new Teacher and Early Childhood Educator School Supply Tax Benefit, a refundable tax credit that will apply to the purchase of up to $1,000 worth of school supplies each year, for a maximum credit of $150 per year, effective January 1, 2016.  See Teacher and Early Childhood Educator School Supply Tax Credit on the Budget 2016 website.
 - exempt from income amounts received under the Ontario Electricity Support Program, so that this assistance does not affect income-tested benefits such as child benefits.  See Ontario Electricity Support Program on the Budget 2016 website.
 - Other measures, information on the Budget 2016 website:
 - Mineral Exploration Tax Credit for Flow-Through Share Investors - eligibility extended for 1 year.
 - Sales of Linked Notes - return on linked notes will retain the same character whether earned at maturity or reflected in a secondary market sale.
 - set a cap on how much can be claimed through the stock option deduction

Seniors

Guaranteed Income Supplement (GIS) Top-up for Single Seniors

The budget proposes to increase the Guaranteed Income Supplement (GIS) top-up benefit for single seniors by up to $947 annually starting in July 2016, more than doubling the current maximum GIS top-up benefit.  Single seniors with annual income (other than OAS and GIS supplement benefits) of about $4,600 or less will receive the full increase of $947.  The increased benefit will be reduced above the threshold of $4,600 and will be complete phased out at an income level of about $8,400.

Enhancing the Canada Pension Plan (CPP)

The Budget announced that consultation will be started with Canadians regarding enhancement of the CPP retirement pension, with a view to making a decision before the end of 2016 about how it should be enhanced.  Consultations with Canadians will be started in the coming months.

Restoring the Eligibility Ages of the Old Age Security (OAS) Program

The Budget proposes to cancel the provisions in the Old Age Security Act that increase the age of eligibility for OAS and GIS benefits from 65 to 67 and Allowance benefits from 60 to 62 over the 2023 to 2029 period.

Increased Support for Senior Couples Living Apart

Budget 2016 proposes higher benefits based on individual incomes for couples who receive GIS and Allowance benefits, and must live apart for reasons beyond their control.

Old Age Security and Guaranteed Income Supplement Indexation

The Budget also announced that the Government is looking at how a new Seniors Price Index that reflects the cost of living faced by seniors could be developed to be used as the index for increasing the OAS and GIS.

For more information on the above proposals for seniors, see Improving the Quality of Life for Seniors in the 2016 Budget.

Financial Support for Veterans

The Budget proposes to:

 - increase the Disability Award, with the maximum increased to $360,000 in 2017, indexing it to inflation.  Higher Awards to be paid retroactively to all veterans who have received an Award since the introduction of the New Veterans Charter in 2006.
 - expanded access to higher grades of the Permanent Impairment Allowance, and rename the benefit Career Impact Allowance.
 - increase the Earnings Loss Benefit to provide income replacement of 90% of gross pre-release military salary, eliminate the 2% cap for indexation of this benefit, and amend the calculation of the minimum benefit to be based on a senior private's salary instead of a basic corporal's salary.

For more information on these measures, as well as information on consultations planned by the Government re veterans' financial support programs, see Supporting Canada's Veterans in the 2016 Budget.

Business Income Tax Measures

Personal Services Business Corporate Tax Rate

The Budget proposes to increase the corporate tax rate from 28% to 33% for personal services businesses, effective for the 2016 and later taxation year.  Where the corporate taxation year straddles 2015 and 2016, the rate increase will be prorated according to the number of days that are after 2015.

Small Business Tax Rate

The Federal 2015 Budget revised the Small Business Tax Rate and the non-eligible dividend tax credit starting in 2016, and the Federal Liberal Platform included keeping these revised tax rates.  However, the Federal 2016 Budget proposes to keep the small business tax rate at 10.5% after 2016, to keep the non-eligible dividend gross-up factor at 17%, and and to leave the non-eligible dividend tax credit at 21/29 of the gross-up amount, so that the effective rate of the dividend tax credit remains at 10.5% of the taxable dividend.  See Small Business Taxation on the 2016 Budget website.

  Will not happen
  2015 2016 2017 2018 2019+
Small business tax rate 11% 10.5% 10% 9.5% 9%
Non-eligible dividend gross-up  18% 17% 17% 16% 15%
Non-eligible dividend tax credit 11.017% 10.5% 10% 9.5% 9%

Small Business Deduction

The Federal 2016 Budget proposes to make changes regarding partnerships and corporate structures which have the effect of multiplying the amount of the small business deduction.  See Multiplication of the Small Business Deduction on the 2016 Budget website.

Avoidance of the Business Limit and the Taxable Capital Limit

This proposal relates to a special rule in s. 256(2) of the Income tax Act, under which 2 corporations that would not otherwise be associated will be treated as associated if each of the corporations is associated with the same 3rd corporation.  Budget 2016 proposes to amend the Income Tax Act to ensure that investment income derived from an associated corporation's active business will be ineligible for the small business deduction and be taxed at the general corporate income tax rate where the exception to the deemed associated corporation rule applies.  See Avoidance of the Business Limit and the Taxable Capital Limit on the Budget 2016 website, under the Small Business Taxation heading.

Consultation on Active versus Investment Business re the Small Business Deduction

Active business income, which is eligible for the small business deduction, does not include income from a "specified investment business".  A specified investment business usually has the purpose of earning income from property.  However, a specified investment business does not include a business with more than 5 full-time employees, which results in the small business deduction being available even though the principal purpose is to derive income from property.

The Government consultation on this is complete.  The Government is not proposing any modification to these rules at this time.

Eligible Capital Property (ECP)

Budget 2016 proposes to repeal the current tax treatment of eligible capital property, and replace it with a new capital cost allowance (CCA) class available to businesses and provide rules to transfer taxpayers' existing cumulative eligible capital (CEC) pools to the new CCA class.  This proposal is not intended to affect the application of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) in this area.

Expanding Tax Support for Clean Energy

bulletelectric vehicle charging stations
bulletelectrical energy storage
bulletemissions trading regimes

See Expanding Tax Support for Clean Energy on the Budget 2016 website.

Further Business Measures

The above is not a complete list - for more information see Business Income Tax Measures on the Budget 2016 website.

The links below are all to the Federal 2016 Budget website.

International Income Tax Measures

bulletBase Erosion and Profit Shifting
bulletCross-Border Surplus Stripping
bulletExtension of the Back-to-Back Rules

Sales and Excise Tax Measures

bulletHealth Measures
bulletExported Call Centre Services 
bulletReporting of Grandparented Housing Sales 
bulletGST/HST on Donations to Charities 
bulletDe Minimis Financial Institutions 
bulletApplication of GST/HST to Cross-Border Reinsurance 
bulletClosely Related Test 
bulletRestricting the Relief of Excise Tax on Diesel and Aviation Fuel 
bulletEnhancing Certain Security and Collection Provisions in the Excise Act, 2001

Other Measures

bulletAboriginal Tax Policy
bulletImproving Employment Insurance

Status of Outstanding Tax Measures

 - from the Budget 2016 website

The above measures are not a complete list of all measures proposed by the 2016 Budget.  Please see the 2016 Federal Budget website for complete information.

Moody's Gartner Tax Law LLP provides an interesting Budget Summary and Commentary if you'd like to read more about the budget.

Revised: September 20, 2017

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